Survivorship Bias in Mutual Funds:

• Actively managed mutual funds often suffer from survivorship bias because poorly performing funds are closed or merged, which skews average performance data upward.
• Accounting for survivorship bias gives a more accurate picture of the average fund performance.

Aggregate Data:

• S&P 500 Index:
• Average annual return (1993-2023): Approximately 10-11% per year, including dividends.

SPIVA Report Data (2023):

• The SPIVA (S&P Indices Versus Active) scorecards provide comprehensive data on the performance of actively managed funds compared to their benchmarks. According to the most recent SPIVA reports:
• 1-Year Performance: Around 60-70% of actively managed large-cap funds underperform the S&P 500.
• 5-Year Performance: Around 75-85% of actively managed large-cap funds underperform the S&P 500.
• 10-Year Performance: Around 85-90% of actively managed large-cap funds underperform the S&P 500.
• 15-Year Performance: Around 90-95% of actively managed large-cap funds underperform the S&P 500.

Example Performance Data:

S&P 500 Index (Historical Data):

• Average Annual Return:
• 10-Year (2013-2023): Approximately 11.8% per year
• 20-Year (2003-2023): Approximately 9.8% per year
• 30-Year (1993-2023): Approximately 10.7% per year

General Mutual Funds (Adjusted for Survivorship Bias):

1. Actively Managed Large-Cap Funds:

• Average Annual Return:
  • 10-Year (2013-2023): Approximately 9.0% per year (adjusted for survivorship bias)
  • 20-Year (2003-2023): Approximately 7.5% per year (adjusted for survivorship bias)
  • 30-Year (1993-2023): Approximately 7.0% per year (adjusted for survivorship bias)

1. Actively Managed Small-Cap Funds:

• Average Annual Return:
  • 10-Year (2013-2023): Approximately 8.5% per year (adjusted for survivorship bias)
  • 20-Year (2003-2023): Approximately 7.0% per year (adjusted for survivorship bias)
  • 30-Year (1993-2023): Approximately 6.5% per year (adjusted for survivorship bias)

Factors Influencing Performance:

• Fees and Expenses: Actively managed funds generally have higher fees, which can significantly impact net returns over long periods.
• Market Conditions: Certain periods of market volatility can temporarily favor actively managed funds, but over the long term, the higher costs and difficulty of consistently outperforming the market typically result in underperformance relative to indices.

Key Takeaways:

• Index Funds vs. Actively Managed Funds: Over long periods, index funds like those tracking the S&P 500 generally outperform a majority of actively managed mutual funds when adjusted for survivorship bias.
• Survivorship Bias Impact: Adjusting for survivorship bias reveals a more accurate picture of mutual fund performance, showing lower average returns compared to indices.
• Long-Term Investment Strategy: Given the consistency, lower costs, and reduced risk of underperformance, index funds are often recommended for long-term investors seeking reliable market returns.