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Which Funds Perform Better In A Downward Market?

It’s the age-old debate between active and passive management, but which one performed better during the most recent financial crisis?

The conclusion of this US Morningstar article is that:

  1. Across the 20 Morningstar Categories examined, 51% of active funds both survived and outperformed their average index during the first half of the year. In other words, an actively managed fund had a 50/50 percent change of outperforming a comparable index fund.

  1. If we look over a longer term timeframe, in general, actively managed funds have failed to survive and beat their benchmarks, especially over longer time horizons. Only 24% of all active funds topped the average of their passive rivals over the 10-year period ended June 2020. However, success rates vary, and it is perfectly possible to find areas of the market where you have better odds of picking winning active funds.

Nevertheless, the signal that rings loud and clear in this data set is that investment fees matter.

The cheapest funds succeeded about twice as often as the priciest ones (34% success rate versus 16% success rate) over the 10-year period ended June 30, 2020. This not only reflects cost advantages but also differences in survival, as 65% of the cheapest funds survived, whereas 49% of the most expensive did so.

If there’s one near-certainty in investing, it is “you get what you don’t pay for,” as the Vanguard’s late founder Jack Bogle said.

Hence the rising popularity of ETFs and other index-type funds.

If you need some help constructing your portfolio, please contact me on 0432 885 295 or Yves@affluenceprivate.com.au

You can read the article HERE


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