Passively Managed has The Edge and is far from Average

12/02/2017 6:56:50 AM // Written by Phil Stockton

Passively Managed has The Edge and is far from Average

Everyone (apart from active managers) knows that actively managed funds are most likely to underperform. Over the past 5 years some 91.91% of large-cap US managers lagged their benchmark.  

Most of us know that index funds such as those from Vanguard will provide you with the index return less the cost of the index fund. Dan Solin in a recent Huffington Post piece pointed out that "Vanguard’s index funds, on average, beat 61 percent of actively managed funds over the ten-year period and 44 percent of those funds over the 15-year period. If the analysis had included funds that failed during this period, the record of Vanguard would have been much better."

Dan knows his stuff and like Private Capital understands that some index orientated managers can offer an edge over even the mighty Vanguard. In the same Huffington Post piece Dan notes that "Passively managed funds from Dimensional Fund Advisors did much better. On average, its funds outperformed 76 percent of actively managed funds over 10 years and 80 percent over 15 years."

No one can reliably forecast the market’s direction or predict which stock or investment manager will outperform. A good fee-only adviser can help you create a plan and focus on actions that add value by staying focused on what you can control:

  • Creating an investment plan to fit your needs and risk tolerance; 

  • Structuring a portfolio around dimensions of expected return;

  • Diversify broadly;

  • Reducing expenses and turnover; and

  • Minimizing taxes.

You can read the full piece here. If you want to know more about evidence-based investing with passively managed funds please contact us.  

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