You should think of your active investments in similar terms: Am I getting what I’m paying for? In other words, seek from your active funds what index funds can’t offer, such as specific market outperformance or goals-based objectives like income. Regularly examine these investments to be sure they provide value for their cost.
Index-based funds have grown in popularity―with more than $330 billion in new ETF investments last year3―as investors recognize the benefits of a vehicle that costs less and is more transparent than active mutual funds. Now, it’s becoming evident that iShares style box ETFs may also outperform many of these funds to help you to reach your ultimate financial destination.
1Source: Morningstar, as of 12/31/2014. Post-tax comparison made between the returns at NAV of iShares S&P domestic equity style box funds and all share classes of all active Open-End Mutual Funds within the Morningstar US style box category available in the US at the beginning of the investment period that survived through the end of the investment period. Returns are calculated after taxes on distributions, including capital gains and dividends, assuming the highest federal tax rate for each type of distribution in effect at the time of the distribution. Overall figure is a weighted average of the percentage of funds that the iShares ETF outperformed in each style box, weighted based on assets in each style box. Performance may be different for other time periods. US style box mutual funds are those active funds categorized by Morningstar as US Large Cap Growth / Blend / Value, US Mid Cap Growth / Blend / Value or US Small Cap Growth / Blend / Value. Past performance does not guarantee future results.
2Source: Morningstar, as of 12/31/14. Comparison is between the Prospectus Net Expense Ratio for the average iShares ETF (0.38%) and the average Open-End Mutual Fund (1.27%) available in the US.
3 Source: Bloomberg as of 12/31/2014.
This is a guest post from Matt Raynor, iShares Retail Strategist. You can learn more about iShares Performance ETFs here.