Vanguard Asset Management has hit out against active mangers saying most tend to underperform their benchmarks over five, 10 and 15 years, largely as a result of high fees.
Analysis from Vanguard, whose mission is to provide low-cost funds, also shows that funds with lower fees tend to outperform higher priced investments.
Its research is the latest in a line of findings that have periodically bashed active fund managers for underperformance.
In global equity funds, for example, Vanguard found that 64% of managers underperformed their benchmarks over the 15 years to 2014, while more than 87% of global bond managers underperformed their benchmarks over the same period.
Comparing the performance of a range of actively managed and index mutual funds available to UK investors, and splitting funds into lower and higher-cost quartiles, showed that low-cost funds outperformed those with higher costs in 10 out of the 11 investment categories over the 10-year period to the end of 2014.
In the global equity and bond categories, low-cost funds outperformed by an average of 1.2% and 0.5% per year respectively, and in aggregate, low-cost funds outperformed high-cost funds by an average of 1% per year over the ten-year period.
Dr Peter Westaway, head of Vanguard’s investment strategy group in Europe, says: “It’s important that investors pay attention to costs because in the world of investing, you don’t always get what you pay for.
“Active funds have a poor record of outperforming their benchmarks over the long term, and one of the main reasons is that they typically have higher costs than index funds. Indeed, low cost is the only quantifiable factor that we’ve found to be historically associated with higher average returns over time.”
Vanguard’s study examined the performance of a range of funds available to UK investors, including global, UK, European and emerging market equity strategies and global, sterling, euro and US dollar bonds, using data from Morningstar.
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