why do funds underperform the index, page-7

The last sentence from Teele says it all: while discount/premium to NTA varies, the SP - on average - moves in accordance with the performance of the company's assets.

Likewise as I have learnt from the writings of the great Jack Bogle (founder of the Vanguard group), P/E ratios - i.e. the amount investors are willing to spend on each dollar of earnings - wax and wane but in the long run, share prices are determined by just two factors: dividend yield and earnings growth.

(Note that if a company's P/E ratio increases from 10 to 11, this translates to a 10% increase in that company's share price!)