Managed Funds Contest – Active versus Passive!

We always hear people comparing between Actively Managed Funds (AMFs) and Passively Managed Funds (PMFs). Some say AMFs outperform PMFs despite high fees; others argue AMFs never beat the major indices, not for the past 15-20 years.

I used to invest in both AMFs and PMFs of similar portfolio structure at the same time due to lack of time and more importantly of financial education; therefore I guess I might qualify to comment on this topic.

Note the phrase “similar portfolio structure at the same time”, Only on this basis that we are able to compare apple to apple. “Portfolio structure” means how much of the funds has been invested in what, eg US Balanced Fund (US Bonds/US S&P500, 60/40).

Let’s say this Fund is AMF and to compare fairly its performance to corresponding PMFs we’ll have to look at PMFs that are investing entirely on Bloomberg Barclays Index (for bonds) and S&P500 (for shares) respectively. Assume you get the price daily from the AMF and its PMF counterparts you’ll get the idea how well each perform, and how much the management fees were charged.

Based on my experience AMF outperformed PMF  after fees and tax, but only marginally; it’s therefore investors’ call whether the marginal gains justify the risk and the premium paid to the AMF managers for transactions like brokerage fees.


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