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Commentary

Are the Odds Stacked Against Stock Funds?

Robert Shiller's S&P CAPE valuation data suggests moderate headwinds for large-cap stock funds, and even active funds may feel the drag.

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After the recent market decline, Robert Shiller's cyclically adjusted price/earnings (CAPE) ratio of the S&P 500 Index is now around 20 times, according to the data published on the Yale economist's website. This is well above its historic trading levels, suggesting that investors, especially those in domestic large-cap funds, may need to moderate their return expectations for the stock sleeve of their portfolios.

We did some digging and found that the implications stretch even beyond S&P 500 Index funds. We looked at the 24 large-cap actively managed funds that have more than $10 billion in assets and found that they have tracked the market closely enough to make CAPE a highly useful metric.

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John Coumarianos does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.