This Low-Cost ETF Crushed 86% of Professional Funds Over 5 Years - And It’s Still a Smart Buy Today

Wall Street's expensive fund managers just got schooled by a simple ETF.

The Performance Gap Widens

While financial advisors charge premium fees for 'expert' stock picking, this unassuming exchange-traded fund quietly outperformed 86% of professionally managed portfolios over the past five years. No complex strategies, no hedge fund wizardry - just consistent returns that leave the pros scrambling for excuses.

Why Active Management Keeps Failing

Fund managers love talking about their Ivy League degrees and sophisticated algorithms, but most can't beat a basic index approach. Their high fees eat into returns while adding zero alpha - it's the financial industry's dirtiest open secret.

The Simple Path to Outperformance

This ETF proves that sometimes the smartest move is avoiding Wall Street's complexity trap. Low expenses compound over time, transparent holdings eliminate surprise risks, and broad diversification provides stability that active managers only promise.

Still delivering market-beating returns without the hedge fund ego - because sometimes the best financial strategy is ignoring the 'experts' entirely.

Image source: Getty Images.

The ETF that's hard to beat

Most large-cap funds use a benchmark index to measure their relative performance. The reason investors pay those high fees is that those funds can supposedly outperform that benchmark by enough to more than make up for it.

Unfortunately, that's rarely the case, especially among large-cap stock funds. As a result, roughly 54% of large-cap funds underperformed the(^GSPC 1.56%) during the first half of 2025 when accounting for fees, according to data from. And the numbers generally get worse over time. Over the last five years, 86.9% of funds underperformed the benchmark after fees.

You might have put together by now that the ETF that can consistently outperform most professionally managed funds is an S&P 500 index fund like the(VOO 1.54%). With its expense ratio of just 0.03% and low tracking error, it has effectively matched the S&P 500's returns over the last half decade.

But it's not just happenstance that professionally managed funds have underperformed the S&P 500 recently. There are systemic reasons why the vast majority of professionally managed funds will underperform the index over time. That's evidenced by the 20-year track record of professionally managed funds: 91% underperformed over the last two decades. And I'd bet the next 20 years will look pretty similar.

Why it's so hard for professionals to outperform

There are a couple of main reasons why it's so hard for a professional fund manager to outperform the S&P 500 over the long run.

The first challenge is the competition in the market. When a professional fund manager wants to buy or sell a stock, they need to find someone else to buy it from or sell it to. More often than not, that's another professional investor who's just as educated, has their own team of highly trained analysts, and also expects to outperform the market. Of course, since they're taking opposite sides of a trade, they can't both be right.

Since professionals are mostly competing against one another directly, the odds that any random fund outperforms the S&P 500 before fees is close to about 50/50. But when you add in the expense ratios for each fund, those odds drop considerably. It's rare that the majority of large-cap funds outperform the index in any given year. You have to go back to 2009 to find the last time it happened.

The second major challenge for professionally managed funds is the paradox of success. If a fund outperforms in one year, it'll attract attention, which brings more capital. More capital limits the investment options for a fund manager and may require spreading investments to less attractive stocks to keep more cash invested. The result is a decline in performance in subsequent years. This phenomenon, combined with mean reversion, has played out time and time again in the stock market, with top-performing funds in one year moving to the bottom in the next year. None of the funds performing in the top quartile remained at that level over the next four years, according to S&P Global.

The simple path to outperformance

The numbers show there are fund managers who earn their keep -- 13% have outperformed the index over the last five years and 9% have beat the market over 20 years. The problem for investors is that it's practically impossible to identify those funds and their managers ahead of time.

The simple solution is to stick with the index fund. The Vanguard fund has a great track record of tracking the index closely, ensuring your returns will match the S&P 500's returns no matter when you invest. Consistently adding to a position in the ETF could set you up to outperform the vast majority of Wall Street once you account for fees.

It doesn't have to be complicated if you want to outperform the professionals.