Today ThisIsMoney.co.uk reported that only 38% of fund managers actually out-perform the market. What is worse, many actively managed funds are under-performing. Investors are not only losing out on stock market losses, but also wasting money on management fees.
The data was published by Which? They looked at the performance of 96 actively managed funds which specifically aim to beat the FTSE All-Share index over the last 10 years. Of these, only 37 managed to beat the FTSE All-Share Index.
So, if fund managers are not actually making good investment decisions on your behalf, what is the alternative?
Time To Invest In Passive and Tracker Funds?
There has been a rise of tracker funds in the last decade. These funds simply track the stock market and buy shares as they rise and sell as they fall. This reduces risk, although also reduces the potential big increases too. But for many people risk minimisation is more important. This all sounds like a good idea, but …. who are the tracker funds tracking?
If everybody put their savings into tracker funds and then sat back and let the complex algorithms take over, what exactly would the computers be tracking? We need dealers and traders, fund managers and small investors to take risks and research new businesses, to try to determine which stocks are going to succeed, and which may be failing. Without some element of research, analysis, guess work and gut feeling, the market would surely grind to a halt. The tracker funds would have nothing to track, and all possibility of making a profit from the stock market would end.
The debate over whether you should go passive or active will no doubt continue for many more years. However, be warned – if too many people put their money in passive funds, the stock market will itself become pacified.
Manage Your Own Funds
Maybe a better solution is to manage your own funds. You could place 50% of your investment into a passive fund to reduce overall risk, and then have some “fun” trying to beat the top earning fund managers at their own game. If you need to tips, just watch Trading Places. Or read our yet-to-be-written article (coming soon ….).
Investors could be wasting millions on fund managers as ‘just 38% beat the market over the last decade’ – ThisIsMoney.co.uk, 23 April 2013.