Have any of the key institutional groups—banks, investment counselors, insurance companies or mutual funds—exhibited consistently superior investment performance? Data on the investment performance of all these types of institutions are now available. Working from four data sources, each of which covered one or more of the four basic categories of money manager, the authors determined the frequency distribution of investment returns for each category for cumulative periods ranging from one to 10 years. They then compared the performance of all possible pairs of manager categories over each cumulative period, calculating both the difference in the means for each pair of categories and the statistical significance of the difference.
Of the 52 comparisons involving mutual funds, all favored the mutual funds and 67 per cent were statistically significant. Investment counselors had the next best record, with 60 per cent of their comparisons being favorable and 15 per cent significant. Close behind the counselors were the insurance companies, with 49 per cent favorable comparisons and 16 per cent statistically significant.
The authors’ examination of year by year performance within their sample decade indicated that mutual funds enjoyed significant margins of superiority in four of the 10 years, suffering a significant shortfall only in 1969. Evidently, their superiority was not due to extraordinary performance in one or two years. Nor was it a result of concentration in secondary issues. During the 1970-74 period, when the Value Line Index (which gives relatively greater weight to small capitalization issues) underperformed the S&P 500 substantially, the mutual funds’ performance was almost identical to the average of the other three categories of fund manager.