[DesertCat]

Actually I think most mutual funds do beat the market, before their fees. The math is something like the typical actively managed fund is charging between 1.5% and 2% per year, and only beating the market by 1%.

Another reason is that a mutual fund's objective isn't necessarily to beat the market, it's to keep and accumulate investor funds. It's really hard to outperform other funds and indexes significantly, but if you buy the same stocks as the S&P 500 and other funds you are guaranteed not to trail the market by much, and you can keep your investors (mostly) happy. So many large funds are (supposedly) index funds under the hood.

An example of this is the market timing controversy of last year. Funds were allowing big investors to buy shares each day after close, which actually hurt their fund returns (and esp. hurt returns of other investors in the fund who weren't market timing). But the more money the fund has invested, the more fees they make.

Mutual funds own too many different stocks, far more than they can reasonably understand. When you are putting money into a hundred positions, ten might be really great ideas, the rest are filler. They have to diversify for several reasons, but large funds esp. can't buy too much of any single stock.

This can cause problems because investors can pull their money out any time they want, and they get almost instantaenous updates on performance. So in a market downturn, the fund may be forced to sell it's positions to raise cash for people leaving. This causes their positions to fall, the fund to fall, and then more people want out.

So a fund can be forced to sell it's best ideas when they are cheap, and may not get more money to buy them back until after they go up again.

These are all reasons people setup private investment partnerships (sometimes called Hedge funds). They can restrict investors from redeeming funds except with significant notice (no trading in and out). They don't have to give daily updates. They can and do get compensated for delivering high performance. Their competitors don't know what they are buying (and vica versa). They can be more focused and less diversifed, and buy about anything they want.