Index funds win again

Yet another study confirms that investments in index style funds beat hedge funds and mutual funds run by supposed investment geniuses - by a shockingly wide margin. This is especially true for wealthier investors paying taxes at the highest levels. Mark Kritzman of Windham Capital Management shows that for a New York State taxpayer, an index fund returning just 10% annually beats a typical hedge fund returning 19% per year and an active mutual fund returning 13.5% per year. The results are even more startling in California where we pay a state tax of 9.25% (and growing) compared to NY State's 6.85%.

This means that a hedge fund would need to beat the index fund by 10 percentage points every year and the active fund by 4 percentage points. Finding such funds is almost impossible since so few exist. And the very few that do have a record of winning by such wide margins are almost certainly there by luck.

Once again we find that on Wall Street, the bigger the story, the worse the results.