Swedroe: Don’t Believe The Active Hype

March 20, 2015

I was struck recently by a commercial for the MFS family of mutual funds. In its advertisement, MFS stated: "We believe in the power of active management." They then went on to boast about the power of their global network, saying: "There's no expertise without collaboration."

 

To determine if there is any evidence to back up its claims, we'll go back to my trusty videotape. But before checking the historical record, it's worth noting that the first U.S. mutual fund was created by MFS Investment Management (formerly Massachusetts Financial Services) in 1924. The fund went public in 1928, allowing investors to pool their money together for the first time.

 

Analyzing The Performance           

MFS is a highly successful firm, managing more than 80 funds with almost $200 billion in assets under management. Let's take a closer look to see if the performance of these funds supports the firm's assertions. To bring the number of funds we'll analyze to a manageable level, and so we can compare the performance of these funds to a passively managed benchmark in a simple manner, an MFS fund will have to meet the following criteria:

 

  • At least a 15-year track record
  • Assets under management must be at least $750 million
  • Be an equity fund (no bond funds or balanced funds)
  • Be either domestic or international (no global funds)
  • Be either large or small (no midcap funds)

 

Introducing these criteria brings the list of MFS funds eligible, for comparison purposes, down to 11. These 11 funds have approximately $106 billion in assets under management, or about 55 percent of the firm's current total.

 

We'll compare the performance of these 11 actively managed funds with funds in the same asset class that are managed by Dimensional Fund Advisors (DFA), which provides passively managed asset class funds that aren't also index funds.

 

In the interest of full disclosure, my firm, Buckingham, has been using DFA funds to construct client portfolios for about 20 years now. Thus, there is no hindsight bias at work here. The table below uses data from Morningstar and covers the 15-year period ending March 13, 2015.

 

Performance Of MFS Funds Vs. DFA Funds

 

Fund Symbol Annualized
Return (%)
MFS Return
Minus DFA
Return (%)
MFS Core Equity A  MRGAX 5.8 1.5
DFA U.S. Large Company DFUSX 4.3  
MFS Emerging Markets Equity A  MEMAX 5.9 -1.4
DFA Emerging Markets DFEMX 7.3  
MFS Growth B MEGBX MEGBX 0.6 -3.7
DFA U.S. Large Company DFUSX 4.3  
MFS International Growth A  MGRAX 4.4 1.2
DFA Large Cap International DFALX 3.2  
MFS International Value A MGIAX 7.3 0.7
DFA International Value DFIVX 6.6  
MFS Institutional International Equity  MIEIX 5.7 2.5
DFA Large Cap International  DFALX 3.2  
MFS Massachusetts Investors Growth MIGFX 2 -2.3
DFA U.S. Large Company DFUSX 4.3  
MFS Massachusetts Investors Trust A  MITTX 4.8 0.5
DFA U.S. Large Company DFUSX 4.3  
MFS New Discovery A  MNDAX 3.5 -5.1
DFA U.S. Small Cap  DFSTX 8.6  
MFS Research International A  MRSAX 3.5 0.3
DFA Large Cap International DFALX 3.2  
MFS Value A MEIAX 8.3 -0.7
DFA U.S. Large Cap Value DFLVX 9  
MFS Average Return NA 4.7 -0.6
DFA Average Return NA 5.3  

 

 

 

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