Outperforming the stock market in the United States is difficult. Using the S&P 500, the benchmark index of U.S. equities, as the standard of performance, only 27% of actively managed large-capitalization equity funds beat the passive benchmark over the 12-month period ending June 30. Over the decade ending in June, just 13% of actively managed stock funds beat the broad S&P 500 index.

Why do active portfolio managers struggle to beat the index?

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Management fees create an immediate hurdle. An S&P 500 index fund typically charges investors an annual fee of just 0.02% to 0.05%. An actively managed fund charges considerably more, often 0.5% to 1%. The active manager must overcome that difference every year just to match the index. Over the past several years, a small number of technology stocks, such as........

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