Although index funds are widely popular, funds with active management have a future. The past 12 months saw the Kiplinger 25 funds clocking good gains. This was made possible by a change of market dynamics. The last few years saw the gap that existed between the worst performing stocks and best performing stocks get narrowed.
According to Liz Ann Sonders of Charles Schwab, it was complex to differentiate between the losers and the winners. She said, however, that things are about to change. The gap is widening. There is also a divergence of large capitalization benchmark. Stocks' relative performance is also good, allowing managers improved chances of beating the index.
Good year for stocks
For stocks, 2016 was an excellent year. It was an average year for bonds. The last 12 months saw the S&P 500 index generating a 25 percent return. The Russell 2000, an index of small company stocks, went up by 36.1 percent. The index which tracks stocks of foreign origin in developed countries – the MSCI EAFE- came back thumping, returning about 15.8 percent. Even better was MSCI Emerging Markets Index, clocking up 29.5 percent. All is not roses though. A measly 1.4 percent was returned by Bloomberg Barclays US Aggregate Bond index.
The results are mixed when it came to the Kiplinger 25. When considered as a group, the diversified US stock funds-12 of them- returned 26.0 percent. This is a substantial improvement over 2015 when the stock funds lost 9.0 percent on an average over the 12 month period ending February 2016.
Adopt active stock picking
It is clear that the environment is conducive for active strategies. It is evident that, when it comes to long term investing, purchasing good lower fee led funds administered by expert stock pickers who have own money invested with you will help you in your stock market endeavors. There is no need for you to pick between passive and active management. It is observed that a mixed portfolio of index and active funds have usually outpaced strategies which concentrate on only one of them. All Kiplinger stock funds enjoyed double digit gains. Only five of them beat the Standard & Poor 500 over past year.
Kiplinger's foreign stock funds has followed a similar pattern. The MSCI EAFE index was beaten by FMI International over past 12 months. The benchmark, however, was too much for Fidelity International Growth. A healthy 21.6 percent gain was made Baron Emerging Markets. It trailed behind by about 7.9 percentage points.