The Morningstar data reveals that the majority of active managers have underpeformed their benchmarks, with the exception of mid- and small-cap value active funds over the past year where 53.5% and 66.7% have outperformed, respectively.
Nevertheless, Strauts notes that the one-year success rate is more volatile than the 10-year success rate, and over the short-term, active managers will have a wide range of returns, which can lead to stronger performances underperformances compared to benchmarks.
“This analysis shows that, on average, active managers underperform,” Strauts added. “This doesn’t mean that active management doesn’t have a place in a portfolio but that an investor needs to look to other factors such as management fees, stewardship, and investment process.”
Alternatively, investors can cut down fund fees by investing in passive, index-based ETFs. For instance, BlackRock’s iShares recently reduced the fees on a number of its products, with the Shares Core S&P Total US Stock Market ETF (NYSEArca: ITOT) showing an expense ratio of 0.03%. ITOT was the cheapest on the block for a brief moment. [A Cheap, One-Stop ETF for Broad Market Exposure]
Not to be outdone, Charles Schwab lowered fees by one basis point on four of its large-cap ETFs in response, with the Schwab U.S. Large-Cap ETF (NYSEArca: SCHX) and Schwab U.S. Broad Market ETF (NYSEArca: SCHB) both coming in at a low 0.03% expense ratio. [Schwab Responds to iShares Fee Cuts]
Max Chen contributed to this article.