Irish passive funds perform better than actively-managed ones
Published 10/10/2013 | 05:00
INVESTMENT funds with no manager making decisions on where to put clients' cash have outperformed Irish-managed funds over the last five years, a new survey shows.
A passive fund tracks an index like the ISEQ or the FTSE, rather than trying to beat it by investing in companies in accordance with the constituents of an index.
Now a survey by chartered financial planner Marc Westlake has found that low-cost passive investment funds have performed well over the last half decade.
Mr Westlake, who is head of wealth management at Goldcore in Dublin, surveyed 895 funds available in this market.
Some funds lost close to 80pc over the past five years, with others showing gains of close to 130pc. The average fund returned 32pc.
But the fee-based adviser said the best returns were to be found by buying and holding, and annually rebalancing, a portfolio of passively managed investments in a fund.
The advantage of a passive fund was that there was no stock picking, no market timing and no active fund management.
People who invest in a passive management fund can pick a strategy that meets their needs without having to worry whether the fund will deliver.
"And they are rewarded with the market returns for the risk they took with considerably less uncertainty about the outcome.
"Risk and expected returns are related. Investors who take more risk have a higher expected return and investors who take less risk have a lower expected return," he said.
He said studies from around the world have shown that passive funds outperform managed funds. "Money is like a bar of soap, the more you handle it, the smaller it gets," he said
By managing down costs, an investor can be almost certain that they will do better than the average investor who typically pays more.
Mr Westlake said many investors were trapped in their existing loss-making fund and cannot sell and move to a "better" strategy because of high exit fees.
For many, the exit tax means that if they sell and buy a new fund, they cannot offset loses on one fund against gains on another.
"This is unfair on investors, many of whom were sold a poor fund, who for tax reasons may be trapped until their investment recovers," Mr Westlake said.