4 Mar 2017 (AFR) – Active investment funds v passive options: which is right for you?

[COMMENT: He is some more discussion about the pros and cons of active versus passive investing, and to invest in managed funds or not, plus other considerations. Please be the judge yourself.]

(4 March 2017, AFR, p24, by Philip Baker)

‘Warren Buffet warned this week about the rule of active managers? But should you let robots do all th ework?’

‘It’s shaping up as crunch time for active fund managers. For a start, Warren Buffett has told retail investors not to bother with them, they’re a losing bet and they’d be better off with an index fund. Then there’s the massive growth in index funds that has put active money managers on notice to find new ways to generate out performance against benchmarks. Also telling is that at times passive funds can outperform active funds. Winner of best fund manager of the year in the Morningstar awards, announced on Friday, is index manager Vanguard Investments Australia. This is the second time in three years it’s taken the title of Morningstar Fund Manager of the Year.’ <snipped…>

‘As Statewide Super’s Michalakis says: “Active managers can also struggle when the top stocks do well. They don’t want to hold four banks, Rio Tinto and BHP Billiton, which account for so much of the index. We don’t listen to the noise of how they go in one year. We look for their performance over five and 10 years.”  On that score, active managers have performed well. Over the past decade the average annual return from the S&P ASX 300 Accumulation Index has been 4.1 per cent per cent, says Mercer, while the median annual return from an active manager was 5.7 per cent (after fees). The past five years shows that the median performance from local fund managers was 11.8 per cent per annum (before fees), compared to 10.4 per cent from the benchmark index .’