![]() ![]() If over a 30-year period you happen to own three or four funds whose performance sinks-not something improbable- your portfolio returns will lag behind the broad market index. ![]() But what if that fund’s performance too sinks? ![]() You may say that you will shift to another highly-rated fund at no cost. It may recover a year or two later, but by then you are out of it. Even if by chance you pick a winner, you may jettison it when its performance sinks. Of the hundreds of active funds, it is impossible to pick one that will outperform over the next 20-30 years.Įquity funds also tend to have a very volatile journey. But, there is one more issue, and a big one at that. You may argue that even if 40 per cent of active funds outperformed, that’s a good show. If they were to be included, the percentage of outperforming active funds would shrink. Your calculations did not take into account the funds that were closed down due to poor performance. On running the numbers you may find that, say, 55 per cent of active funds outperformed their benchmarks over 10 years.īut there is a small flaw in this statistic. ![]() When you do the active-passive performance comparison, the former also appears better due to survivorship bias. In reality, they often get these calls wrong. In theory, fund managers, using their superior market wisdom, can move out of equities and into cash just before markets fall, and in the opposite direction before the markets rise. ![]()
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