Occasionally, it works out that you are more lucky than smart. That is the way I feel about an A-class mutual fund I bought for my 4-year old son as a custodial account way back in 1989! This was before exchange-traded funds (ETFs) and the proliferation of passive strategies. I knew I was getting a better deal than otherwise since my employer allowed me to buy it without a sales charge, but I had no foresight that the fund would continue to perform as well as it did… right through today!
We still hold the fund, MFS Growth Fund (MFEGX), in my son’s name. It is hard to calculate the exact total return over the past 30.5 years, but according to Yahoo Finance Adj. Close Prices from the earliest date available (January 3, 1993), its cumulative total return is 999.83% ( +129.01/11.73) that compares very favorably to an S&P 500 index fund (VFINX) of 1,172.04% (+309.87/24.36)!
Over the past 10 and 15 years, however, its return has been more extraordinary against the S&P 500 and even against its growth benchmark, the Russell 1000 Growth Index. From the table below per Morningstar data, you can see the extraordinary 11.98% annual return and its +1.40% per year advantage compared to its growth proxy (IVW) over the past 15 years!
For an impressive MFEGX visual story (the blue line on top), just take a look at the chart below from Morningstar; $10,000 invested 15 years ago would have grown to over $54,000 today compared to only $28,000 for SPY or $36,000 for IVW.
The message here is two-fold. First, congratulations to me for picking a winner over 30 years ago and seeing it continue to be one of the top growth funds in the mutual fund industry over the recent 15 years. Secondly, and more troubling, is the fact that it was more luck than skill because I bought it 30 years ago in an environment of active management and high fees and history shows that this combination more often than not leads to underperformance (check SPIVA reports at https://us.spindices.com/spiva/#/ for pertinent analysis of this point)!
At that time I most likely would have bought a laggard and would be bemoaning the situation today. Instead, I am quite happy that I ended up on the positive side of the ledger with the odds stacked against me. Given what we know now, best to play with the odds stacked in your favor by focusing on low fee and passive strategies with minimal carefully selected exposure to high fees and active management.