The reading of active fund managers and the BVI fund association has been as follows for years: In booming stock market times, actively managed funds often lag behind their benchmark index and also cost high fees. But when a crisis comes, the fund managers strike and play to their strengths. Steer the ship through rough seas and justify the additional costs compared to passive ETFs and index certificates. So the story.
The truth can be found in Morningstar’s semi-annual active-passive barometer, which repeatedly confirms that we should strictly avoid actively managed funds. The barometer measures the performance of active funds domiciled in Europe compared to passive peers in the respective Morningstar categories. It looks at the 10-year period up to June 2020. The latest barometer includes almost 22,600 active and passive funds. These manage assets of around 3.7 trillion euros, which corresponds to around a third of the entire European fund market.
The results are sobering and support the subjective assessment of many investors who contrast active funds with passive certificates and who have had the impression for years that index certificates are the better instrument. Especially if you use them via a savings plan. Because the long-term success rates of European active funds are low. In the ten years up to June 2020, the success rate of active managers in almost two-thirds of the categories surveyed was below 25 percent. Only in two of the 64 categories did the majority of active funds survive and outperform their average passive peer.
However, the true values are still well below the 25 percent success threshold, other surveys even show that less than ten percent of all active fund managers beat the market. After fees, it should sometimes even be only two to three percent. After all, whether a fund survives at all depends heavily on its relative performance. Many active funds are excluded from the evaluations because they do not survive long enough. This failure is often due to poor performance. A comparison of active and passive funds shows that the latter have better chances of survival in the long term.
What is also interesting about the European active / passive barometer is that it does not evaluate active funds in comparison to a free index. Instead, it compares them to a whole basket of passive funds, such as passive ETFs from Lyxor or UBS. For private investors, the advice can only be to continue training in the area of long-term and, above all, gradual investments. Because a savings plan on ETFs or certificates, such as the one offered by Smartbroker, can be designed so that you actually buy more when the markets shake and become cheaper. In this way you can implement the actual promise of the fund industry yourself and take it into your own hands.
Daniel Saurenz runs the stock exchange portal Feingold Research with his team. It offers a daily stock market letter with investment ideas for different time horizons, which you can find below link can also subscribe and test for a short time. You can get all information about training days and coaching on wealth accumulation at firstname.lastname@example.org