Behind the reputation: nine years of underperformance
The analyses published in this section focus on a real fund whose returns are publicly available. The names of the managers and firms have been anonymized in order to focus on performance. This text is presented for informational and analytical purposes only and does not constitute investment advice.
Some managers manage to post returns above market indices and build a strong public reputation. To judge their success, one must look at the numbers. Here are the nominal returns of a fund I will call Fund Alpha, compared to those of the S&P 500.
Over the 2008–2025 period, the CAGR (compound annual growth rate) of Fund Alpha is 12.5% versus 8.9% for the index. This gap is explained by two distinct periods. First, 2008, where the fund limited its decline to −8.5% while the index lost 38.3%, creating from the outset a considerable cumulative lead. Then, during the years 2013 to 2015, the fund outperformed the index by 16, 13 and 16 points respectively — three consecutive years that brought the cumulative lead to its peak.
Since 2016, the trend has reversed: the fund underperforms the index in most years and its lead has narrowed from 125% to 77% over ten years. If this trajectory continues, the historical outperformance risks being entirely absorbed.
| Year | Fund Alpha | S&P 500 |
|---|---|---|
| 2008 | -8,5 % | -38,3 % |
| 2009 | 13,1 % | 23,5 % |
| 2010 | 13,7 % | 12,8 % |
| 2011 | 5,9 % | -0,2 % |
| 2012 | 20,0 % | 13,5 % |
| 2013 | 46,2 % | 29,7 % |
| 2014 | 24,8 % | 11,3 % |
| 2015 | 15,3 % | -0,8 % |
| 2016 | 7,2 % | 9,6 % |
| 2017 | 13,7 % | 19,4 % |
| 2018 | -3,2 % | -6,3 % |
| 2019 | 24,9 % | 28,8 % |
| 2020 | 12,6 % | 16,2 % |
| 2021 | 25,3 % | 27,0 % |
| 2022 | -17,2 % | -19,5 % |
| 2023 | 23,8 % | 24,3 % |
| 2024 | 20,7 % | 23,3 % |
| 2025 | 2,3 % | 16,4 % |
| CAGR 2008–2025 | 12,5 % | 8,9 % |
If one considers instead the period 2017–2025 (2017 being the year I began investing), the picture reverses: the S&P 500 shows a CAGR of 13.2% versus 10.5% for Fund Alpha, a gap of 2.7 points per year. The protection expected in 2022 did not materialize, unlike what had occurred in 2008.
| Year | Fund Alpha | S&P 500 |
|---|---|---|
| 2017 | 13,7 % | 19,4 % |
| 2018 | -3,2 % | -6,3 % |
| 2019 | 24,9 % | 28,8 % |
| 2020 | 12,6 % | 16,2 % |
| 2021 | 25,3 % | 27,0 % |
| 2022 | -17,2 % | -19,5 % |
| 2023 | 23,8 % | 24,3 % |
| 2024 | 20,7 % | 23,3 % |
| 2025 | 2,3 % | 16,4 % |
| CAGR 2017–2025 | 10,5 % | 13,2 % |
If, for a return close to that of the index, a manager offered significantly reduced volatility in return, there would be a justification for investing in this fund. In that regard, Fund Alpha shows a standard deviation of 14.5% over 2008–2025 and 14.7% over 2017–2025, calculated on the basis of published annual returns. This is indeed slightly lower than the index (17.9% and 16.4% respectively), but the advantage remains modest — and it does not compensate for the return underperformance observed over the recent period.
The question arises: why add an intermediary between one's assets and the market? Each additional layer — manager, fund structure, embedded fees — increases complexity, operational risk and costs, which are often difficult to assess with precision.
Here, the numbers speak for themselves and it is the numbers that must be examined. A manager's reputation is built over decades, often carried by a few exceptional years that serve as a showcase. Looking at the full track record, recent period included, allows for a more nuanced view of overall performance and future expectations: over the last nine years, Fund Alpha has not outperformed an index that anyone can buy without an intermediary through an ETF. This approach is also the one advocated by economic journalist Nicolas Bérubé, who recommends that individual investors favour simple index funds rather than trying to beat the market at any cost.