Most actively managed open-end funds have underperformed their benchmarks over the long haul. Alternatively, investors may be better off in cheap passive, index-based exchange traded funds.
“In the long run, active funds underperform their passive counterparts due to higher fees and trading costs,” Tim Strauts, Senior Markets Research Analyst at Morningstar, said.
Over the one-, five- and 10-year periods, U.S. actively managed equity funds underperformed their passively managed, index-based counterparts.
Looking at the Active Versus Passive Fund Strategies chart, the top lighter half of each box represents the percentage of active funds outperforming their benchmarks while the lower dark half represents the passive benchmark percent returns.