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It’s an extremely pertinent question given recent data released from S&P Dow Jones Indices. The figures show that funds that are being actively managed are failing on a massive scale with nine out of ten European equity funds and three quarters of UK equity funds underperforming against their benchmarks over the last decade.
In addition, funds which outperform their benchmarks are on the scarce side and a large proportion of funds don’t even last the distance with not even half staying the course for a decade. It appears that many fund managers need to take a long, hard look at themselves!
Some, however, can give themselves a pat on the back. UK large and mid-cap fund managers performed better than most with 91% beating their benchmarks in the 12 months to June 2015. Success rates went down however when measured over three and five years with outperformance rates of 84% and 64% respectively. And let’s hear it for the Brits who over all time periods beat their German, French and pan-European fund manager peers.
It is important here to understand the difference between actively and passively managed funds. Actively managed funds have an individual or team of managers at the helm selecting, monitoring and adjusting the asset allocation of the fund. The good ones will be constantly reacting to data on the markets and making changes accordingly. For example, over the summer they could have picked up on warning signs coming from China and moved assets away from Chinese stocks in anticipation of Black Monday on August 24th.
Passively managed funds are often described as investing on autopilot – the asset allocation will exactly mirror a market index such as Standard & Poor’s 500 or the FTSE 100.
Both kinds of fund have their supporters and detractors although figures suggest that well-run active funds will deliver consistently good results and long-term performance. But how do you sort the wheat from the chaff and find the funds that are performing?
For an investor, the key lies in research, which is exactly the reason why Infinity partners with investment manager, Tilney Bestinvest. TBI is a company which puts in-depth research at the heart of everything it does, employing a dedicated team of research analysts compiling monthly data on over 85,000 funds. The team feeds the information gathered to fund managers who can react accordingly. Not only that, but they also compile a half yearly Spot the Dog guide naming and shaming consistently underperforming funds. The report is downloadable here and enables you to easily check your investments for howlers.
If your investments are underperforming, why not have a chat to one of our professional financial advisers who can help you make the switch and transform your investments from mutts into pedigree performers.
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