Why trackers beat active funds

Recent analysis has confirmed what sceptics have long suspected - fund manager performance is more often based on luck than skill. So does that mean your money would be better off in an index-tracking fund?

Recent analysis from fund management group New Star confirmed what many sceptics have been saying for some time: fund-manager performance is based more often on luck than skill. After looking at the number of fund managers who outperformed the median over the last three and five successive years, it found that only one in eight had done so over three years. The number was even smaller over the last five years, when only one in 34 did so.

In other words, "the chances of a fund manager beating the average are no better than tossing a coin", says Philip Coggan in the FT. That would suggest that your money is better off with an index-tracker fund and Coggan points to a recent US survey that revealed that the average index fund beat the average actively managed fund by 2% a year over the long term.

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