How to find active fund managers that are worth paying for

Active funds are unlikely to beat a cheap tracker on average, but can be valuable in certain markets

Words passive and active
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The active versus passive debate has been raging for the past two decades. The biggest issue with active funds is fees. No investor should pay higher fees for sub-par performance. Still, if managers can outperform – earning their fees and then some extra – it is a good deal for investors.

However, it is difficult to dispute that passive funds beat active ones on average over the long run. The S&P Indices Versus Active (Spiva) reports from S&P Dow Jones consistently show that active funds have lagged behind relevant benchmark indices over long periods. Among US-based large-cap US equity funds, 64% have underperformed the S&P 500 over the past 24 years. In Europe, 93% of funds underperformed the S&P Europe 350 over ten years, while 82% of UK funds have lagged behind the S&P United Kingdom BMI.

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Rupert Hargreaves
Contributor and former deputy digital editor of MoneyWeek

Rupert is the former deputy digital editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing. His style has been heavily influenced by US investors Warren Buffett and Philip Carret. He is always looking for high-quality growth opportunities trading at a reasonable price, preferring cash generative businesses with strong balance sheets over blue-sky growth stocks.

Rupert has written for many UK and international publications including the Motley Fool, Gurufocus and ValueWalk, aimed at a range of readers; from the first timers to experienced high-net-worth individuals. Rupert has also founded and managed several businesses, including the New York-based hedge fund newsletter, Hidden Value Stocks. He has written over 20 ebooks and appeared as an expert commentator on the BBC World Service.