One fund has managed to beat its benchmark by close to 800 percentage points over the past decade, Trustnet has found, while another 74 are ahead by 100 percentage points or more. 
In a recent article, we revealed the funds that were outperforming their respective benchmarks by the widest margin during the challenging conditions of 2020. Baillie Gifford American came in first place, followed by Morgan Stanley US Growth, Baillie Gifford Long Term Global Growth Investment, Morgan Stanley US Advantage and Baillie Gifford Positive Change.
Here, we have carried out the same analysis over a longer time frame to find out which funds are outpacing the index between 1 October 2010 and 30 September 2020. Although it misses the falls of the global financial crisis, this period covers the central bank-driven bull market as well as tougher times like 2011’s eurozone debt crisis, the 2015 taper tantrum and 2020’s coronavirus pandemic.
Despite the occasional sell-off, this was a broadly positive time for risk assets with global equities posting a 176.83 per cent total return over the decade. Government bonds made more than 45 per cent.
Performance of stocks and government bonds over 10yrs
Source: FE Analytics
But were funds in the Investment Association universe able to outperform their benchmarks over this period?
After reviewing the 1,440 funds that have both a 10-year track record and a named benchmark (which could be an index, a fund sector or other measure like inflation), we found that slightly over half – or 50.69 per cent – had beaten their benchmark.
It’s important to not that this figure suffers from survivorship bias as any underperforming funds that have been closed or merged away will not have a 10-year track record to the end of September to be examined.
On the other hand, the research does not differentiate between active and passive strategies, so any index trackers will have pulled down the number of outperforming funds.
Some sectors stand out. All five of the IA Japanese Smaller Companies funds were reviewed have outperformed their benchmark over the past 10 years, as have 85 per cent of IA UK Smaller Companies funds.
The numbers drop somewhat when we reach some of the most popular peer groups. Only 51.65 per cent of IA UK All Companies funds are ahead of their benchmark while the proportion of outperforming funds drops to 40.97 per cent in the IA Global sector.
But the worst performing equity sector was IA Global Equity Income, where just 14.29 per cent of members are ahead of their benchmark over the past decade.
When it comes to individual funds, however, there are some examples of striking outperformance.
Source: FinXL
The very top of the list is the Legg Mason IF Japan Equity fund – it’s 926.82 per cent 10-year return is 797.90 percentage points higher than the 128.93 per cent gain in the Topix.
Managed by Hideo Shiozumi since its launch in 1996, the £1.3bn fund claims to take a different approach to many of its rivals. Shiozumi argues that most Japanese equity funds are focused on ‘old Japan’ with high exposure to large-caps and manufacturing names, but he sees the best opportunities in the ‘new Japanese consumer’ and places more weight on smaller companies.
This approach has led to strong long-term returns, but the emphasis on smaller companies means it has been one of the riskier members of the IA Japan sector. Its 10-year annualised volatility of 22.74 per cent is the highest of the 51 funds in the peer group and, over a longer time frame, has experienced heavy drawdowns.
That said, its maximum gain of 73.85 per cent is the highest that IA Japan sector has witnessed over the past decade. The maximum gain of its average peer and the index is around 35 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
The next four funds on the list are managed by either Baillie Gifford or Morgan Stanley Investment Management.
These two groups were also leading in the previous article that looked at outperformance over 2020 so far. Both are quality-growth investors that have a bias towards tech, which have been dominant market forces over the past decade.
Baillie Gifford has eight funds in the full list of 75 funds that have beaten their benchmark by more than 100 percentage points.
However, other groups well-represented include Liontrust Asset Management (five funds) and Columbia Threadneedle Investments (four funds). JP Morgan Asset Management, T. Rowe Price, Comgest Asset Management and Jupiter have three funds each on the wider list.
Source: FinXL
The above table flips this research on its head and reveals the funds that have underperformed their benchmark by the widest margin over the past decade.
Legg Mason ClearBridge US Aggressive Growth sits at the top after lagging behind the Russell 3000 Growth index by 238 percentage points. That said, it has still made a 219 per cent total return for its investors over the period under consideration.
Not every fund has made such high returns, however, with Guinness Sustainable Energy rising just 8 per cent over the last 10 years.
Also present on the list are several value funds – such as Vanguard US Fundamental Value, M&G North American Value and Dimensional International Value – which reflects the persist underperformance of the value style for much of the post-financial crisis period.