First off there are far far less than 10,000 domestic funds. That number is pumped up by the multiple share classes. Any given fund can have 3-7 different share classes. I'm a subscriber to Morninstars premium software and did a fast analysis. I put all Large cap blend in a bucket and there were over 1500 funds. Then I told it I want only unique funds and it came to only 176! All the rest were different share Classes I filtered out .
Of the 176, 25 beat the S&P 500 over past 5 yrs and 12 over past 10.
Large Blend is the hardest Category to beat the Market since the stocks are so widely followed. When you get into LCV , mid cap , small cap , where value can be added far greater portions beat their index .
All the stuff below, except the 10yr returns I listed, is from my memory, and at 4am in the morning, and I have some effects from "the vaccine" I just got — so if you find typos and the like please take that into consideration. When I get a chance I'll post some info about that in the COVID thread.
I won't argue your stats of 3-7 share classes. However, IMHO, your statement is an over simplification as the classes can (and do) have very different yields so in my mind they can be considered different funds. A between 1 to 2% annual range difference in yield over 3-7 share classes over the years is dramatic.
For example one of the few funds I have is DWS Science and Technology. Like I said I am ancient and started investing before the advent of Index Funds. As I recall in early 70's I invested in Fund for Mutual Depositors They had no load and very low expenses and believe it or not you needed to have a savings account in a mutual savings bank in order to invest in FMD funds (Fund for
Mutual Depositors, duh!). So that's what I did.
Eventually FMD was taken over by Scudder Funds which was taken over by DWS. I have all my records on all this, My spread sheet records were 1st in a cellulose and graphite form i.e., I kept reinforced loose leaf sheets in a note book and wrote the entries in pencil. Year end records are kept in a paper folder. With the invention of the PC records were kept in electronic form (remember Lotus 1,2,3) and so on. I kept this fund just for the hell of it and too lazy to take cap gains)
the 10 yr annual returns for various classes (mine is the grandfathered in "S" : 15.93, 16.27,17.12(S), 17.26 and surprise, surprise, the returns are in exact order of their annual expenses. None beat the 10 yr index. BTW, 3 of the 4 classes beat the 1yr technology index (1 yr index 45.13), and 1 was a couple tenths of a % below. Again, surprise, surprise, the returns are in exact order of their annual expenses.
Something else that you can think about: even if we use your 176 example there are only 12 that beat the S&P 500 index. I would call that reversion to the mean. No? (Perhaps you can look up the 20 year returns to see how many beat the mean, and it would be really interesting to see if they are the same 12 - I don't have the resources to do such, nor the inclination.
Also, (something not always thought about) for the even your 176 # is suspect (Like I said I am ancient) as over the years I have seen funds with terrible performance just disappear via mergers into better funds. Although I haven't read it in a couple of years, all this stuff is in
Random Walk Down Wall Street B. Malkiel. Really smart guy and I like really smart guys. Came out with 12th ed last year or so and I will be getting it - has updated stats supporting his pint of view and also stuff on bitcoin.