Funds: 1.5% fees and 90% underperforming the index

Why bank funds lose money while the stock market rises

In mid-April, a retail investor split their capital across six different funds. A week later, they were down 2%, despite an upward-trending sideways market. Meanwhile, the same saver had bought Endesa and Santander shares during March's dips, making 5% and 2% profit, "without much effort." This scenario is familiar to anyone with a local branch account and highlights the core issue: the product banks sell as the serious, professional way to invest often ends up performing worse than a couple of intuitive decisions.

The case of six funds losing money in a green market

The story begins with three dates. In mid-January, a Bankinter manager placed a client's savings into three funds. Three months later, all three were in the red, showing a 5% loss. In mid-April, another protagonist bought six different funds and accumulated a 2% loss in seven days. During the same period, their Endesa shares yielded 5% and Santander shares 2%. The comparison stings because it dismantles the hierarchy: the product "managed by the world's top experts" not only fails to beat the stock market but trails behind a few gut-feeling bets.

The question that trinc is so basic it feels uncomfortable: How can someone paid for this perform so poorly? The answers pile up, and none relate to the manager's skill.

Why bank-distributed funds yield less

The most common explanation points to who gets paid. Banks push their own funds to clients who already have their payroll, mortgage, and insurance with them; they don't need to generate returns through fund performance, just collect management fees regardless of outcome. An independent asset manager, however, only sells funds. If they perform poorly, they lose clients. This alignment of interests explains why small managers—a tiny fraction of the market—often capture a large share of the best long-term results.

A second, more structural argument concerns size. A large fund moves so much capital that it cannot buy small companies without moving their price. It is left with large-cap stocks, monitored by legions of analysts and held institutionally. Since the collective of large funds is, largely, the market itself, their performance tends to converge to the average due to pure arithmetic. Even Warren Buffett has noted the difficulty for giant vehicles to outperform the whole market.

Fees: 1.5% annually versus under 0.4%

Here is the figure least advertised in branches. A conventional bank fund charges around 1.5% annual management fee, deducted from assets whether the year is good or bad. Aggressive low-cost index funds charge below 0.4%. Sustained over a decade, this difference eats a significant portion of final returns, and the manager gets paid the same: their compensation does not depend on your gains.

Hence, much of the circulating advice is identical: index to a broad benchmark—S&P 500, Eurostoxx, Ibex—with staggered contributions and minimal fees. The objection is that such an investor loses expert protection during downturns, and that indexing has become the trendy recommendation, which always invites suspicion.

What percentage of funds beat the index?

The answer in cited analyses is uncomfortable: around 90% of actively managed funds fail to beat their reference index, and over 80% do not even surpass inflation. Only 5% achieve this sustainably. The problem worsens when looking long-term: a fund beating its index for ten years is often itself a sign of miccionan reversion in the next decade. Buying the top performer is the most popular strategy and, on paper, one of the worst.

Then there is survivorship bias. What is marketed is what previously worked; failures are removed from shelves. Brochures show a selected photo, never the full series.

Choosing the top 20 funds from a list of 2,800

Another aspect is method. One investor describes their system: from a catalog of 2,800 funds accessible via their bank, keep those leading in 3- and 5-year returns; among these, choose those with lowest volatility; and split money between twenty. They defend that they win in almost all cases in the first month. Critics argue this isn't skill, but rearview mirror thinking: past performance guarantees nothing, and filtering by "top gainers" usually means buying expensive assets that have already risen. The classic response is that a monkey throwing darts would do just as well, with the nuance that the monkey saves the 1.5% fee.

How long must you hold a fund to avoid losses?

Here views truly diverge. The classic defense speaks of two years minimum, preferably five, and treating the fund like a savings account you don't check weekly: short-term losses occur, but long-term good periods compensate. The counterargument is common sense: two or three years of losses, when the saver is older, is a timeframe not everyone can afford. Some note that drawing conclusions from two fiscal years is like judging roulette after three red spins.

Added to this is a forgotten tax nuance. Moving half a position to fixed income to wait for a drop isn't just shifting money: it's selling, and it triggers taxes. The alternative used for this is a money market or low-volatility fixed-income fund, where maximum losses barely exceed half a percentage point.

---

With these elements, the lingering question isn't whether funds work, but if it makes sense to pay 1.5% annually for a product that, at best, replicates what an index does for a tenth of the cost. And if the answer is no, why do most savers still sign at the branch feeling they are doing the prudent thing?