Mutual Funds Don’t Love You Back
I’ve noticed a funny thing recently with a few clients and prospects. They’re loyal to a specific mutual fund or fund family. One client told me that she only wants American Funds, which she was familiar with through a previous financial advisor. Another claimed that he’d never sell his T. Rowe Price Blue Chip Growth Fund. And a third always keeps a balance in the Fidelity Contrafund, and believes (s)he is immune to risk when it involves that particular fund.
I understand the impulse. You get comfortable with a certain brand, or you’ve had success with a particular strategy, and you want to stick with what you know. But this loyalty doesn’t really pay off. The problem is that a fund family’s reputation, or even a fund’s track record, don’t necessarily mean that you can expect outperformance.
Here's why the brand name typically has little to do with performance relative to a benchmark (something I’ll explain):
#1 Not all fund families are internally consistent. Take American Funds, run by Capital Group. Its funds use a "multiple manager system," where several independent managers each run a sleeve of the same portfolio. That structure produces wildly different outcomes across the family.
American Funds New Perspective has landed in the top 35 percent of its Morningstar category over trailing 10-, 15-, and 20-year periods. That’s pretty good. Meanwhile, American Funds' $88 billion Large-Cap Growth Fund was downgraded to “neutral” after six of its portfolio managers departed over the last six years, including the lead investment officer in January 2025. The same parent company and the same brand have completely different research processes and personnel across its funds—something that tends to be true for all but the smallest fund companies.
#2 Strong returns often reflect the asset class, not the manager. Take the T. Rowe Price Blue Chip Growth Fund I mention above. Its benchmark is the Russell 1000 Growth Index. For some time, the largest holdings in that index have been Nvidia, Apple, Google, Microsoft, and other tech behemoths.
These have been some of the biggest stock-market winners of the last decade, so any fund managed tightly to the Russell 1000 Growth Index has likely posted strong returns. The T. Rowe Price Blue Chip Growth fund is no exception. Its 10-year annualized return is more than 15 percent per year, an outstanding return by nearly any measure.
But how does that compare with its benchmark? For comparison, look at the passive iShares Russell 1000 Growth ETF or the Vanguard Growth ETF, which each have 10-year annualized return of nearly 18 percent! Despite its excellent absolute return (that is, without any comparison to its benchmark), T. Rowe Price is lagging its benchmark significantly. This is why it’s so important to evaluate performance relative to the fund’s stated benchmark.
In plain terms, the fund's strong returns come from an extraordinary run in large-cap growth, not from the manager beating that trend. Crediting the manager mistakes a tailwind for skill.
Fidelity Contrafund is a more interesting case because fund manager Will Danoff has actually earned some of his reputation. But Contrafund's largest holdings also overlap heavily with the S&P 500 and his performance is roughly in line with a quality-focused index (quality can be measured by high profitability, low debt, and stable earnings).
That's an accomplishment for an active manager. But it also illustrates the point: even one of the most successful stock pickers of his generation is producing returns that closely track what a passive or other rules-based index strategy captures.
He’s just not that into you. Image created with ChatGPT
#3 Expense ratios have more explanatory power than the brand. According to recent data, the average actively-managed equity mutual fund charges 0.64 percent a year compared with 0.05 percent for the average index equity fund. These expenses are near record lows historically, but the 0.59 percentage point gap between active and passive still erodes performance over time.
Research has consistently shown that the odds are poor that the extra fee buys you outperformance. S&P's SPIVA scorecard found that over the 15 years ending in 2025, in not one of 22 U.S. equity fund categories did a majority of active managers beat their benchmark. In most categories, over 90% of active managers underperformed over the long term. Last year (2025), 79 percent of actively managed funds underperformed the S&P 500—the fourth-worst year in the history of the SPIVA scorecard.
The expense ratios for the Fidelity Contrafund and T. Rowe Price Blue Chip Growth Funds are 0.74 and 0.70 percent. Those are high hurdles to beating a passive fund that charges less than 0.1 percent. And that hurdle is not usually cleared.
None of this means active funds are worthless. Contrafund's history argues otherwise. But it does mean the question "which fund family is best?" is the wrong question. The right questions are: what asset classes and index exposures does this fund actually give me, what is it charging me for that exposure, and does my overall portfolio hold a sensible mix of asset classes?
The academic research has been consistent. The landmark Brinson, Hood, and Beebower study, published in 1986, and reaffirmed in a 1991 follow-up, found that asset allocation explains more than 90 percent of the variability in a portfolio's returns over time. Asset allocation far outweighs which specific securities or funds you pick within an asset class. Your mix of stocks, bonds, U.S. and international exposure does the heavy lifting. The fund family logo on the statement does not.
If you’ve grown comfortable with a particular fund or fund family, it can be difficult to see that it may not actually be your best option. And I understand that. But try to look at what the fund is invested in, what is the cost, and whether it fits the diversified portfolio you want, regardless of whose name is on the label.
This article first appeared in The Berkshire Business Journal