A man arguing in favour of actively managed investment funds instead of low cost (and even no load) passive trackers.
One thing that has long puzzled me has been the preference of many investors for index-tracking funds or passive ETFs – both designed to simply match the performance of an index like the FTSE 100 – over traditional funds where a professional investor is employed to try to beat the market by picking the best stocks.
Why is this so surprising? Well, because both theory and practice say that passive trackers are indeed the way to go. The costs of active management are greater than the extra (even when there is some extra) returns. And theory backs it up: the efficient markets hypothesis says that this should be so (note to people who rant and rave about the EMH being obviously wrong. That passive trackers are indeed better investments than active funds is strong evidence in favour of the EMH).
So it\’s a bit surprising to see a financial pages columnist arguing the other way.
Tom Stevenson is an investment director at Fidelity Worldwide Investment.
Extremely surprising, eh?