The Death of Mutual Funds

Here’s a simple question to ask your financial advisor: “Why did you pick the funds in my portfolio?”

If the answer involves a manager’s track record, a star fund company, or a good feeling about the strategy, ask a second question: “How often do funds like that actually beat their benchmark?” The answer is in a report that S&P Dow Jones Indices has published twice a year for more than two decades. I just read the latest edition, and the numbers are worth knowing.

What the SPIVA report measures

SPIVA stands for S&P Indices Versus Active. It compares actively managed funds, where a manager picks the investments, against the index each fund is supposed to beat. A large-cap fund is measured against the S&P 500, a small-cap fund against the S&P SmallCap 600, and so on. The fund returns are net of fees.

The scorecard also counts funds that were merged or closed along the way. S&P starts with every fund in a category at the beginning of the period, then counts a fund as underperforming if it either closed during the period or survived but failed to beat its benchmark. That matters because failed funds quietly disappear from most fund rankings, which makes the survivors look better than the whole group really was.

The latest results: large-cap funds versus the S&P 500

The SPIVA U.S. Mid-Year 2026 report, with data through June 30, 2026, shows the share of large-cap funds that trailed the S&P 500:​

A fund that closed counts as a miss, so the numbers aren’t flattered by survivors. Notice the pattern. The longer the time period, the worse the odds get. Over 20 years, only about 7 in 100 large-cap funds beat the S&P 500.

This isn’t a recent problem

The report also charts how large-cap funds did in each calendar year. In 22 of the 25 years from 2001 through 2025, more than half of large-cap funds trailed the S&P 500. Only 2005, 2007, and 2009 were exceptions. The bad years are not rare events. They are the norm.

It’s not just large caps​

Over 20 years, 100% of large-cap growth funds either closed or trailed the S&P 500 Growth index.

Measured on a risk-adjusted basis, the results are worse. Ninety-eight percent of large-cap funds trailed the S&P 500 over 20 years, and 95% over 10.

Most funds don’t last

Here’s a number that gets less attention. Of the 690 large-cap funds that existed at the start of the 20-year period, only about 37% still existed at the end. Roughly 63% were merged into another fund or shut down. Across all domestic equity funds, about 62% were gone. Over 10 years, roughly a third of domestic equity funds had disappeared.

When a fund closes, its poor record often disappears with it. A fund company can quietly fold a weak performer into a stronger one, and the combined record looks better than the original.

Where active management does better

Active managers do beat their benchmarks sometimes, and the report shows where:

• Large-cap value: Only 46% of funds trailed their index over one year, and 41% over three. That edge fades over longer periods, with 82% trailing over 10 years.
• Emerging markets: 38% underperformed in the first half of 2026.
• International small-cap: 35% underperformed.
• Bonds: Across all fixed income categories, an average of 38% underperformed, compared with 60% for stock funds. Government bond funds are the exception, with 77% trailing.

Even so, the long-term story is the same. A short stretch of good results rarely lasts.

A word of caution about one data point

The first-half 2026 figure of 67% is lower than the 79% for all of 2025, and some people will say active management is making a comeback. I wouldn’t read much into six months. Over 10, 15, and 20 years, the numbers barely move.

If anything, the first half makes the case stronger. S&P describes the period as a favorable backdrop for stock pickers. Stock-level dispersion, which is when stock-picking skill is supposed to matter most, was the highest since 2008, and the average stock beat the cap-weighted S&P 500 by 2%. Yet S&P concluded that “these seemingly favorable conditions were still not enough for most managers to capitalize on.”

Why this keeps happening

Funds don’t underperform because the managers are unintelligent. Many are very smart. The problem is arithmetic. Before fees, the average actively managed dollar must earn about the same as the market, because active investors together are the market. After fees and trading costs, the average has to fall short. Economist William Sharpe described this in his 1991 paper, “The Arithmetic of Active Management.” The more a fund charges, the harder it is to catch up.

Picking the winners ahead of time is the other problem. The funds that beat their benchmark one year are rarely the same ones that do so the next.

What this means for how I invest

At Axis Capital, I build portfolios with broad-based, low-fee index funds. I’m not claiming index funds always win, or that you’ll never have a bad year. They’ll fall when the market falls. But they cost less, and the money you don’t pay in fees stays invested and compounds over 20 or 30 years.

If you’re working with an advisor, or you own funds you picked years ago, ask: “How have these funds done against their benchmark, over 10 years, after fees?” If the answer is unclear, it’s worth a closer look.

If you’d like me to look at what you own and compare it against the benchmark, click Book A Meeting.

FAQ: Do Mutual Funds Beat Their Benchmarks?

1. What is the SPIVA report?

SPIVA (S&P Indices Versus Active) is a scorecard published by S&P Dow Jones Indices that compares actively managed funds with the index each fund is supposed to beat. A large-cap fund is measured against the S&P 500, a small-cap fund against the S&P SmallCap 600, and so on. Fund returns are measured net of fees. The Mid-Year 2026 edition covers data through June 30, 2026.

2. Do actively managed mutual funds beat the S&P 500?

Most do not. In the SPIVA U.S. Mid-Year 2026 report, about 93% of large-cap funds trailed the S&P 500 over 20 years, which means only about 7 in 100 beat it. Over 10 years, 83% trailed. Over 5 years, 89% trailed. The longer the time period, the worse the odds get.

3. What percentage of large-cap funds underperform the S&P 500 over 10, 15, and 20 years?

Over 10 years, 83% of large-cap funds underperformed the S&P 500. Over 15 years, 90% did, and over 20 years, 93% did. Over shorter periods, 67% trailed in the first half of 2026, 77% over 3 years, and 89% over 5 years. These figures come from SPIVA U.S. Mid-Year 2026 and include funds that closed during each period.

4. Is mutual fund underperformance a recent problem?

No. SPIVA’s calendar-year results show that in 22 of the 25 years from 2001 through 2025, more than half of large-cap funds trailed the S&P 500. Only 2005, 2007, and 2009 were exceptions. Years when most active managers fall short are the norm, not a rare event.

5. Why do most actively managed funds underperform index funds?

The main reason is arithmetic. Before costs, the average actively managed dollar earns about the same as the market, because active investors together make up the market. After fees and trading costs, the average has to fall short. Economist William Sharpe described this in his 1991 paper, “The Arithmetic of Active Management.” Picking the winners in advance is also hard, because the funds that beat their benchmark one year are rarely the same ones that do so the next.

6. Do closed or merged funds count as underperformers in SPIVA?

Yes. SPIVA starts with every fund in a category at the beginning of the period and counts a fund as underperforming if it either closed during the period or survived but failed to beat its benchmark. This matters because failed funds quietly disappear from most fund rankings, which makes the survivors look better than the whole group really was.

7. How many mutual funds close or merge over time?

A lot. Of the 690 large-cap funds that existed at the start of SPIVA’s 20-year period, only about 37% still existed at the end, so roughly 63% had merged or closed. Across all domestic equity funds, about 62% were gone after 20 years. Over 10 years, roughly a third of domestic equity funds had disappeared.

8. Do the results get worse after adjusting for risk?

Yes. On a risk-adjusted basis, about 98% of large-cap funds trailed the S&P 500 over 20 years, and about 95% trailed over 10 years. Large-cap growth funds had the worst record: about 99.5% either closed or trailed the S&P 500 Growth index over 20 years.

9. Are there areas where active management does better?

Sometimes, over shorter periods. In the Mid-Year 2026 report, only 46% of large-cap value funds trailed their index over one year, 38% of emerging markets funds underperformed in the first half of 2026, and 35% of international small-cap funds did. Across fixed income categories, an average of 38% underperformed, compared with 60% for stock funds, though 77% of government bond funds trailed. The edge tends to fade over longer periods: 82% of large-cap value funds trailed over 10 years.

10. Does the lower first-half 2026 result mean active management is making a comeback?

Probably not. About 67% of large-cap funds trailed the S&P 500 in the first half of 2026, which is lower than the 1-year figure of 79%, but six months is a short window. Over 10, 15, and 20 years, the numbers barely move. S&P noted that conditions looked favorable for stock pickers, yet concluded that “these seemingly favorable conditions were still not enough for most managers to capitalize on.”

11. Does this mean all mutual funds are bad investments?

No. The SPIVA data is about active management, not the mutual fund structure itself. Many low-cost index funds are mutual funds, and others are ETFs. The problem the data shows is paying higher fees for a manager who tries to beat the market and, most of the time, doesn’t. Index funds can still lose money when the market falls, but they cost less, and the money you don’t pay in fees stays invested.

12. How can I tell if my funds are beating their benchmark?

Start by finding each fund’s benchmark index, which is listed in the fund’s prospectus or fact sheet. Then compare the fund’s 10-year return, after fees, to that index. Also check the fund’s expense ratio, and look at whether the fund company has merged or closed similar funds, because that can hide a weak record. If the comparison is unclear, an independent advisor can run it for you.

13. How does a flat-fee financial advisor help with fund selection?

A flat-fee advisor charges a set fee instead of earning commissions on the funds they recommend, so there is no financial reason to steer you toward a particular product. At Axis Capital Management, portfolios are built with broad-based, low-fee index funds, and we can compare what you currently own against its benchmark. To get started, book a meeting.