Why This Fund’s 256,766% Return Still Doesn’t Beat the Market

  • America’s oldest mutual fund stands its ground in indexing age
  • ‘You don’t want to screw up anything that was the first’

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Kevin Beatty can take the long view on investing. Ninety-three-years-long, to be exact.

From his perch in Boston, Beatty co-manages the oldest mutual fund in America, if not the world. Opened in the Roaring Twenties, when Calvin Coolidge was president, the Massachusetts Investors Trust has weathered 16 recessions, roughly 20 bear markets and worse.

Kevin Beatty

Source: MFS

What it hasn’t done is beaten the stock market over the long haul.

Sure, the fund has had plenty of good years. Beatty has been beating the S&P 500 Index in 2017. But over its measurable life, the fund has actually trailed the broad U.S. market -- a sobering thought as today’s active money managers contend with the relentless rise of passive investing strategies and computer algorithms.

Here’s the score. From the late ’20s through July, an index composed of the largest U.S. stocks would have posted a cumulative return of roughly 673,360 percent. The Massachusetts Investors Trust, meantime, returned just 256,766 percent.

Investor Outflows

It’s not a perfect comparison. In Coolidge’s day, none of the indexes familiar to current investors was in existence. The S&P 500 was introduced in the ’50s. However, a proxy index for the largest U.S. companies could be tracked by Morningstar Inc. as far back as 1926, less than two years after the Massachusetts Investors Trust opened.

Still, the difference is big enough to give any investor pause.

Beatty, 56, says he occasionally feels the weight of history. He’s been running the $6.3 billion fund since July 2004 and has posted an average annual return of 8.7 percent, against 8.3 percent for the S&P 500.

Even so, roughly $770 million has flowed out of the fund over the past year or so, and $7.5 billion over the past 15, according to Morningstar’s estimates, reflecting an industry-wide tilt toward low-cost, passive investment funds.

“Every once in a while, when you hear it’s the first mutual fund, you think to yourself, you don’t want to screw up anything that was the first,” Beatty says.

Paper Ledgers

When John Bogle’s Vanguard Group began offering index funds four decades ago, the idea seemed sort of crazy. Today, passive funds hold more than a third of all assets in the U.S.

In the hushed offices of MFS Investment Management, the company behind Beatty and co-manager Ted Maloney’s fund, today’s upheaval in the investment industry can feel far away. On display in the greeting area are old paper ledgers, with entries in sweeping cursive -- a testament to the firm’s long history and its enduring approach toward active management.

Russel Kinnel, director of manager research at Morningstar, cuts the old fund some slack. Many stock pickers struggle to beat the market over three or five years, let alone over nine decades. Before index funds came along, pioneers like MFS helped to get ordinary people investing -- offering the opportunity to buy into a diversified portfolio with moderate fees.

“I don’t think it’s a big knock,” Kinnel says of the fund’s nine-decade performance. Massachusetts Investors Trust has performed “respectably, rather than remarkably.”

Beatty, the chief investment officer of global equity at MFS, stands by active fund management and his fund’s long-term approach.

“I still believe in the ability of good active managers to beat the market,” Beatty says. “To the extent that we have good performance, flows will come.”

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