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Indexing (mostly) beats active management

While this is something we have known for quite some time, Charles Rotblut highlights a couple of great points from the most recent S&P Indices Versus Active Funds Report (click here to read his article). Namely, in aggregate, active funds fail to beat their benchmark over a 5-year period. This is not to say that active management does not have a place in a person’s portfolio, but as this report shows there are only certain pockets of inefficiency from which outperformance can be found.

All else being equal, individuals can reap higher rates of after tax returns and lower fees by investing with asset class funds. In fact, rather than spending inordinate amounts of time searching for that manager which may or may not outperform their index over a 5 year period, investors can buy an asset class fund and have (statistically) a 75% chance of beating the category average returns. This probability increases to over 90% when talking about Fixed Income mandates. It is great to see hard data prove that the highest probability for achieving returns in the top 25% of a category is by taking an index based approach. If you have any questions about this study or its ramifications, please feel free to reach out to us:

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