Are passive funds always better than active funds?

The received wisdom is that cheaper passive funds always outperform more expensive active funds. But lower charges are beginning to change the maths of fund investing, says Merryn Somerset Webb.

It depends on how irritable I am feeling on any given day, but sometimes, when I am listening to a fund manager warbling on about the way in which his special investing method has brought his fund fame and fortune, I lean forward just a little, in a friendly sort of a way and say: "How do you know you aren't just very lucky?"

This is mostly taken as an invitation to explain to me a little bit more about just how price-to-growth or free cash flow ratios are the key to success. And that makes me dream of theday when a manager shrugs, smiles and says: "I don't".

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.