outperform the market.^4 This study followed on the heels of academic
articles, particularly those by William Sharpe and Michael Jensen, that
also confirmed the underperformance of equity mutual funds.
Figure 20-2 displays the distribution of the difference between the
returns of 138 mutual funds that have survived since January 1972 and
the Wilshire 5000.
Only 48, or less than 40 percent, of the 138 funds that have survived
over the past 35 years have been able to outperform the Wilshire 5000.
Only 30 have been able to outperform the market by more than 1 percent
per year, while only 14 have bettered the market by at least 2 percent. On
the other hand, over 65 percent of the surviving funds underperformed
the market, and almost two-thirds of those underperformed by more
than 1 percent per year. And, as noted above for Table 20-1, the actual re-
turns on these funds are worse since these returns exclude sales and re-
demption fees.
Despite the generally poor performance of equity mutual funds,
there are some winners. The best-performing mutual fund over the
entire period is Fidelity’s Magellan Fund, whose 16.07 percent annualCHAPTER 20 Fund Performance, Indexing, and Beating the Market 345
FIGURE 20–2
Performance of Surviving Mutual Funds Relative to the Wilshire 5000, January 1972 through December 2006(^4) Burton G. Malkiel, A Random Walk Down Wall Street: The Time Tested Strategy for Successful Investing,
5th ed., New York: Norton, 1990, p. 362.