Thanks for writing this Opher. I really appreciate the insight. I hope you don't mind me responding to your content. I like to keep contrary opinions within my inner circle. I don't want to live in a bubble (hopefully, you gain some value from my contrary opinions, as well?)

To improve your analysis, though, I think you should be sure that you're comparing apples to apples. The T. Rowe Price funds you listed aren't necessarily comparable to the Vanguard funds you listed. This issue is further compounded when you compare the average T. Rowe Price funds with the average Vanguard funds. It's like comparing a basket of many different types of apples to a basket of many different types of oranges (do oranges have different types?)

It would be better to compare the T. Rowe Price funds with their comparable index. This ensures that we're comparing apples to apples. Thankfully, Morningstar has this data available.

Generally, the T. Rowe Price funds beat their relevant indices across 5-, 10-, and 15-year time spans. Clearly, the manager of the T. Rowe Price funds is doing something right!

That said, there does seem to be a worrying trend: over longer time periods, the returns between the T. Rowe Price funds and its comparable index narrow over time (compare the five-year returns with the 15-year returns), suggesting that the T. Rowe Price funds tend to have a harder time to beat their relevant index in the long term than in the short term (why this is the case, I can't say--maybe there are some equilibrium effects happening behind the scenes)

Putting that aside, though, I'm not sure if this article really answers my question: "Should we expect more funds to beat their relevant index over the next ten years, or less?"

The issue with fund performance, as well as most time series data, is that it's non-stationary, which is just a fancy way of saying that the past isn't like the future. I think this non-stationarity property is why many index investors, myself included, find the past performance of actively managed funds unimpressive.

We look at the data and say, "Yes, but can you say that it will beat the index over the next X years?" If fund performance was stationary, then that would be an easy question to answer; sadly....

So, where does this leave us?

Well, I'm not sure. There are active funds that beat their index--but we already knew that. If you were lucky to invest in the T. Rowe Price funds over the past 15 years, then you would be laughing at index investors right now (and rightly so).

But, what of the next 15 years? The next 20?

In the past, the solution was to find a method to pick the winning fund (the 1 in 6 alluded to in Ben's article).

1 in 6 odds is pretty good--I'd certainly take that bet!

But, then we return to our old friend non-stationarity. 1 in 6 odds of yesteryear could become 1 in 10 in the subsequent 10 years, or (heaven forbid) one in 100. Even if you have a good strategy to pick winning funds, the strategy isn't perfect--and if more and more funds fail to beat the index over X years, then your strategy becomes less and less likely to be effective.

Sigh...

"Should we expect more funds to beat their relevant index over the next ten years, or less?"

I've written so much already, and yet, I'm nowhere close to answering this question (perhaps that means I'm becoming a better economist?)

It's just...a really difficult question.

It requires a lot of insight into the competitiveness of the mutual funds industry and how technology will impact market efficiency. Improvements in the former should lead to more funds outperforming their relevant index but improvements in the latter should lead to less.

Honestly, I didn't plan to answer the question myself haha. I proposed the question as a sort of fun intellectual puzzle for you to chew on. But, you went through the effort of offering a cogent response, and here I am, critiquing you like some armchair philosopher XD

I'll write an article on this topic in due time--I just have a few other articles on the back burner. (I'll also be sure to tag you in it so you can poke at any mistakes I've made).

Anyway, apologies for the long comment. I hope it offered some value, though. I'm sure you can appreciate a contrary opinion as much as I can.

Also, I like to give people the last word. So, feel free to respond to this comment. I won't respond myself, but I'll be happy to hear your thoughts.

Finance is for everyone.