A managed fund beats an index

I noted the other day that some research had given the nod to index funds over managed funds, the difference largely being the index funds' lower fees.

A few years ago, however, I switched from mostly index funds at Vanguard to mostly American Funds, a company whose funds are sold only through brokers and that can carry hefty up-front fees (loads). I have been quite pleased with American Funds through the recent ups and downs of the market.

One of the selling points for me was a diagram showing that American could beat indexed funds if they were regularly rebalanced. Now I've come across a study by the blog AllFinancialMatters suggesting the same thing.

Blogger "JLP" -- I wish people would use their full names -- compared the S&P 500 against American's Investment Company of America fund for a 10-year period.

The value of the ICA (Class A) shares (after the 4.5% front load) was $122,257 at the end of 2009 while the value of the Vanguard S&P 500 Index Fund shares was $90,165. That’s a $32,000 difference. Had the ICA shares not had the front load, the end value would have been over $128,000. Here's a chart:

Now before you run off and put all your money into American Funds, read the full piece to get the assumptions and caveats, and also read the comments to hear some criticism. It may all be due to the period he chose to compare. Nonetheless, it's interesting.