Survey: Investors better off with passive index fundsNews added by National Underwriter on April 1, 2013
National Underwriter

National Underwriter

Joined: April 22, 2011

By Warren S. Hersch

Most of the people who paid a mutual fund manager in the last decade would have done better by investing in a passive index fund at a much lower cost, according to new research.

NerdWallet published this finding in a summary of results from a survey that examines more than 24,000 mutual funds and ETFS available to U.S. investors for the ten-year period ending on December 31, 2013. Of these, 7,943 were in existence for the full ten years.

See also: Passive funds outperformed actively managed mutual funds over past decade

The asset-weighted average return of the actively managed mutual funds over this period was 6.50% while the passively managed index products averaged 7.30%, the report states. Similarly, for equity funds the average return was 7.19% for active managers and 7.65% for passive funds.

Index funds outperformed actively managed funds regardless of whether returns were measured by asset-weighted average, median, or a simple average, the survey adds.

“Past academic studies have indicated that professional investors are not worth the cost because the after-fee return is lower than that of the market index,” the report states. “Theoretically, active managers as a group will have a hard time outperforming the market over the long-run because professional investors are a large portion of the market and once fees are netted out, they are likely to underperform a passive index.”

Among the report’s additional conclusions:
  • Only 24% of professional investors beat the market over the past 10 years
  • Index funds outperform actively managed funds by 0.80% annually, but active managers have lower risk
  • Active managers outperform the index by 0.12% before fees, but charge more in fees than the value they create
  • Large funds significantly outperform small funds with much higher returns and lower risk
  • Smaller stocks are riskier than large stocks, but don’t necessarily deliver higher return
  • Growth stocks significantly outperformed value stocks over the past decade
Originally published on LifeHealthPro.com
The views expressed here are those of the author and not necessarily those of ProducersWEB.
Reprinting or reposting this article without prior consent of Producersweb.com is strictly prohibited.
If you have questions, please visit our terms and conditions
Post Press Release