Mutual funds with a stated objective to approximate the return of the Standard & Poor's 500 Stock Index get poor marks for risk, an analysis of 35 funds with track records of at least three years shows.
The analysis - by Smith Breeden Associates Inc., using data from Morningstar Inc.'s OnDisc database - rated funds using the Sharpe Ratio. That risk measurement tool was devised in 1966 by William F. Sharpe, a Nobel laureate and a trustee of Smith Breeden's family of mutual funds. Each fund was rated on one- and three-year returns, as well as on risk.
Only four of the 35 index and enhanced index funds got top marks in both risk and return for both periods.
The Smith Breeden Market Tracking Fund and the Vanguard Quantitative Fund tied, showing consistently above-average performance with only average risk.
The other two funds were Fidelity Disciplined Equity, an actively managed fund that uses artificial intelligence methods to choose stocks, and Vanguard Institutional Index, a passive fund.