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Season 3 · Owning a slice · 3.5

Most managers lose to the index they're paid to beat

Active fundvsthe index?
What it is

An active fund pays a manager to pick investments, hoping to beat a plain index. An index fund just copies the index, cheaply.

SPIVA scorecardMost active funds: behind the index
Why it matters

S&P's SPIVA scorecards, published regularly for both the US and Europe, consistently find that most actively managed equity funds trail their benchmark index over 10 to 15 years, after fees.

INDEX FUND FEE0.2%ACTIVE FUND FEE1.0%
The numbers

An index fund might charge 0.2% a year; an active fund often charges 1% or more. That extra 0.8% has to be earned back in performance just to break even with the index.

3 good yearsCheck the benchmark, over 10
The trap

A fund's past 3 good years sound convincing. Comparing it against its own benchmark over 10 years, after fees, tells a more honest story.

FactsheetBenchmark: the index it should beat
Where you see it

A fund's factsheet names its benchmark. Line the fund's long-run return up against that benchmark's, after fees, before trusting a short run of luck.

In one line

Most active funds trail their benchmark over the long run, after fees. Check the comparison, not the headline.

Do it today

Compare one active fund with its benchmark, 10 years.

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