Realising that all actively managed funds (as opposed to passive index funds) are considerably more expensive – up to ten times more expensive – one must ask the question “am I wasting my time and money investing in actively managed funds?”. Data reflected in the below table indicates over various time periods just how substantially the active funds in each asset class underperform the index. On average, the longer the time frame for investment, the greater the underperformance of active funds. Given most investors invest for the medium to long term, the underperformance impacts future wealth.
|Percentage of Funds outperformed by the Index (%)|
|Fund Category||Quarter||1 Year||3 Years||5 Years|
|Australian share small cap||16.00||15.79||20.73||20.78|
|Australian equity A-REIT (ASX listed Property)||93.59||86.42||88.37||65.12|
A significant appeal is the lower management fee an investors pays compared with actively managed funds. Many of these active funds have expense ratios of 2.0% p.a. or more, whereas many index funds have an expense ratio of around 0.4% p.a., some even lower! The reason the costs are lower is because an index fund is not actively managed Investing. IndexInvest is a specialist analyst and investment manager focused on achieving reliable and consistent returns for our clients.