Our Insights

About personal finance, investments and markets.
August 17, 2016

Are active mutual funds better for volatile markets?

During volatile markets such as in the last few years, investors might logically assume that actively managed investment funds are a better choice than passively managed index funds (ETF). Incidentally, this is exactly what Didier Saint-Georges, member of Carmignac Gestion’s Investment Committee said recently in an interview. „In volatile markets, fund managers have the opportunity to shine with good investment ideas. An ETF is not able to do that.“ Since Carmignac runs one of Europe’s biggest retail funds, Carmignac Patrimoine, we felt compelled to put his words to the test.

Enough with those fairy tales, bring back the facts

The last five years were anything but quiet and markets certainly deserve the attribute „volatile“.

Dax 5 years 1

How has the actively managed fund Carmignac Patrimoine performed relative to its benchmark? Let’s take a look at the company’s website:

Last 3 months – fund (black line) underperformed its benchmark (grey line) by -2.24%


Last 6 months – fund (black line) underperformed its benchmark (grey line) by -7.30% CP6m

Last 12 months – fund (black line) underperformed its benchmark (grey line) by -7.33% CP1J

Last 2 years – fund (black line) underperformed its benchmark (grey line) by -12.95% CP2J

Last 5 years – fund (black line) underperformed its benchmark (grey line) by -35.91%


We just present the facts here – we let you decide if you think the fund has managed to deliver on its promises.

Summary: Don’t play the loser’s game

Didier Saint-George was right in theory: good investment ideas should make a difference and active fund managers should be able to outperform. But in reality, they rarely do. There is an overwhelming body of academic evidence showing the same result: over a 5+ year time frame, only about 20% of all active managed mutual funds beat their index. While it is possible to beat an index with active funds, it is not very probable!

Investors significantly decrease the odds of achieving their financial goals by choosing active strategies rather than passive strategies. That is why Charles Ellis called active management the loser’s game. What he meant: while it is possible to win the game of active management, the odds of doing so are so poor that the surest way to win is to choose not to play. That is why, whenever I come across a statement from an active fund manager like the one quoted above, I review the cold, hard performance numbers and see if the claim stacks up. It rarely does.

What we wanted to show:

  • Investors shouldn’t take all claims of the asset managementindustry at face value
  • Beating an index is hard – it doesn’t matter whether markets are stable or volatile

Are you interested in learning more about our evidence-based approach to wealth management? We are based in Munich and help expats living in Germany. All our legal documents are in German and in English. If you would like to get in touch, don’t hesitate to send us an email.


P.S. We didn’t intend to pick on Carmignac Gestion. The results presented here are similar for most actively managed mutual funds. The founder and its employees deserve praise for building one of the fastest growing asset managers in Europe in the last decade. We should also not forget that the fund Carmignac Patrimoine managed to protect its investors during the financial crisis in 2008. However, most of the new money went into the fund thereafter, i.e. those investors had to endure the underperformance since then. Past performance should never be the key criteria for choosing a fund!