An annual scorecard of mutual fund performance is in, and it's generating more of the negative headlines that fund managers have become accustomed to in recent years.
The key finding: Two-thirds of managed U.S. stock funds failed to beat the market in 2012, according to S& P Dow Jones Indices. For all their stock-picking skills, the vast majority of managers couldn't claim an edge over low-cost index funds and exchange-traded funds that seek to match the market.
It was the sixth time in the last 10 years that average annual returns of managed funds fell short of the market's overall performance. Faced with such persistently disappointing results, it's understandable that an investor might consider giving up and rely exclusively on index funds.
But look deeper into the latest annual scorecard, and there's a positive takeaway for investors. Funds specializing in stocks of small foreign companies have beaten their market benchmark year after year.
In 2012, 85 percent of this small group of funds posted larger returns than an S& P index of stocks from foreign developed countries. Returns for the five-dozen funds in the international small-cap category averaged 21.7 percent, compared with 15.4 percent for the index.
It wasn't a one-year fluke. Ninety percent outperformed over three years, and 79 percent over five years.
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