Our Insights

About personal finance, investments and markets.
July 16, 2014

Active vs passive funds – a first-half recap

It is by now well known that the majority of actively managed funds have in the past underperformed their benchmark index. Was the first half of 2014 any different? Sadly, no. Only a paltry 19% of all actively managed funds in the US have outperformed their benchmark. In Europe the picture is broadly the same. We can help you to find the few outstanding fund managers that do exist while at the same time building a core portfolio with low-cost ETFs.

The 1H performance is broadly in line with the long-term trend. On average 80% of actively managed funds underperformed their benchmark over the last 10 years.

Graph: Percentage of active funds underperforming low cost index funds over last ten years, ending December 31, 2013

Vanguard - funds underperform ETF 10 y

As we stated before, due to the overwhelming evidence of the long-term outperformance of low-cost ETF, we advocate that investors use as much ETF as possible and as few actively managed funds as necessary. We therefore recommend for most clients a core-satellite strategy. In this case, the portfolio consists of a passively managed core and a few satellites consisting of actively managed funds. The mix between active and passive funds is driven by the risk appetite of the investor.

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