Something you might not have heard in the news recently and certainly not from the investment community – active investment managers, stock pickers and forecasters once again had their bottoms smacked.
Standard & Poors released their most recent analysis, comparing the performance of actively managed funds against their bench mark indices, and the results weren’t pretty.
Particularly damning was the comparison of active managers against a very common share index, the S&P/ASX 200 Accumulation Index.
If you’d invested in that index and left your money alone for the last five years, just by doing nothing, you would have outperformed 71% of actively managed funds.
Over the last year it’s even worse, that index outperformed 81% of actively managed funds.
For international shares the trend continues, over five years the MSCI World (ex-Australia) Index outperformed 74% of international actively managed funds.
And it’s the same story in Bonds, where the UBS Composite Bond Index beat over 80% of actively managed bond funds.
Needless to say, unless you can pick the right fund – which is only ever done in hindsight – you’re likely better sticking to the index.
Now those active fund managers might be smart people, though in a previous article I did use the Gordon Gekko quote of them being “sheep that get slaughtered,” but their performance calls into question the reason for their existence.
Over the longer term, forecasting is almost always unsuccessful, yet strangely, money still flows to active funds.
Beyond forecasting, the constant hurdle active managers face – even if they beat the index in a straight comparison – are the fees charged and extra taxes incurred.
Both are a given in active management, and when factored in, regularly pull returns below those of the index.
Predictions are foolish, but I think I can safely predict the smacking of active managers’ bottoms will continue for a long time to come.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. If you’d like help with your financial future, we might be Australia’s best financial planner. We think we’re the best financial advisers in Tasmania.
