My latest Eureka report article considered the big issue of how well have the biggest fund managers performed over the past 5 years? I looked at only Australian share fund and found that, on average, the Australian share funds of companies like Macquarie, BT, Colonial and AMP had failed to beat the average market return. In fact, they failed to the tune of 1.7% a year.
This is an interesting warning. If the biggest and best financial services industry can't beat the index return through 'active management', then who can?
Another interesting aspect of the article is that an index fund, which simply matches the average return with little buying and selling of investments, was very tax effective. The Vanguard Australian share fund had a pre tax return over the 5 years to the 30th of June of 11.6%, beating the vast majority of the active funds, and an excellent after tax return of 11.33% for someone in the 30% tax bracket. The active funds, which by their very nature will be trading a lot, would have lost much more than this in tax.