The debate over choosing actively managed mutual funds versus passively managed funds (via index funds) is nothing new, and in all likelihood, will keep on going for hundreds of years.

While some will say it is entirely possible to outperform the market, index fund proponents will argue that it’s impossible to do so over a long period of time. They will also point out that the amount of money you will save by paying lower expense ratios will make up for itself in the long run, even if a mutual fund might outperform the major indices from time to time.

However, if you could get an actively managed mutual fund for free… would you take the chance?

Most people may not be aware of it, but there are a few individual companies that are essentially nothing more than an actively managed mutual fund. The best part is you will never pay another management fee again.

Individual Stocks that Mimic Actively Managed Mutual Funds/ETFs

1. General Electric. This U.S. conglomerate is involved in nearly every major business field the world has to offer. Heavy industry, transportation, finance, basic infrastructure, even health care, are all actively managed businesses under the GE umbrella. While not as active as an actively managed mutual fund, GE has a tendency to buy and sell whole companies when they feel it benefits their shareholders.
2. Berkshire Hathaway. Warren Buffett is quite possibly America’s most successful and trusted investor. So it begs the question — why wouldn’t you want to have him and his management teams managing your money? Berkshire is really nothing more than a holding company that invests in other businesses. He is known to invest in well run, high cash flow businesses that include everything from chewing gum companies to railroads to insurance companies.
3. BlackRock. Blackrock is probably one of the most well known names on Wall Street, but hasn’t yet become a household name. More than likely because they weren’t mentioned nearly as many times as other bailed out banks and they focus much of their efforts toward markets that aren’t all that sexy (government bonds, asset management, risk management, mutual fund/ETF management etc).
4. Johnson & Johnson. While skewed towards the health care industry, JNJ is one of the most active companies on Wall Street when it comes to actively managing their product portfolio. Their business includes everything from consumable baby products to advanced medical diagnostics and commonly used antibiotics to cutting edge oncology biotech drugs. Their recent acquisition of Cougar Biotech is just one notable example of how active this old Dow Component has become.
5. Goldman Sachs. Love them or hate them, Goldman Sachs is probably the best run financial institution on Wall Street. In fact, they’re often jokingly referred to as a hedge fund all by themselves. They have their hands into everything (government agencies, commodities markets, emerging markets, etc) and are definitely one of the world’s premiere “print their own money” institutions.

Just to be clear, it should be noted that these are individual stocks, and they will not provide anywhere near the capital protection offered by a diversified mutual fund or a generic index fund. Meaning that if one of these companies takes a hit after missing an earnings estimate, they could fall 10 to 20 percent overnight. Index funds aren’t nearly as volatile, so you’re definitely get some capital protection for paying the expense ratio in this respect.

However, for the investor who holds a rank slightly above that of an amateur and wishes to take a more active role in researching their own investments, companies such as these could be a decent place to begin your journey.

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Disclosure: I hold no position in any of these companies at the time of publishing other than through a basic Vanguard index fund.

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