New data out from Standard & Poor's reveals that actively managed mutual funds haven't been earning their keep, even before the current market meltdown. Over the five years ending last June, the S&P 500-stock index beat out roughly 70 percent of actively managed large-company funds, according to S&P. International funds and bond funds lagged behind their benchmarks by even more (87 percent and just over 75 percent, respectively).
Now that every single diversified stock fund is in the red so far this year (and mutual fund fees are set to rise next year), critics are calling for funds to trim their fees when they perform poorly.
Some already do. TFS Capital, a small-company fund based in Richmond, says its goal is to beat the Russell 2000 index by 2.5 percentage points. If it fails to do so, the fund forfeits its entire management fee. But if it beats the Russell by more than 2.5 percentage points, management could raise fees (annual expenses are currently 2.7 percent).
So far this year, the fund is down 46 percent. According to Chuck Jaffe of Marketwatch, TFS has turned away more than $200,000 since its 2006 inception.
Other fund families that use performance-based fees include Janus Fidelity, and Vanguard.