The active mess

Australian investors throw away millions of dollars each year using funds with active fund managers.

An actively managed fund involves a fund manager buying and selling stocks and shares in an attempt to outperform the market they’re operating in - such as the Australian or international share markets.

However, research company PIVA monitors these funds and annually produces reports chronicling if any of these managers manage to beat their targets.

As you’ll see in the above chart, in the Australian share market sector in year one nearly 60% fail this test. And as the years go on that number increases.

For international shares the results are even worse. In fact, over 10 years 90% of fund manages fail to beat the basic benchmark.

So why do people keep using them? Firstly, there’s some huge fees and advertising in play here. Secondly, humans instinctively follow trends and a fund that may have outperformed in year 1, will see an inflow of money from people jumping on. Years 2, 3 and 4 might be a disaster and the money drips away and in many cases the fund shuts down.

We don’t use active fund managers at Metric Wealth. That means we aren’t gifted their private lunches, drinks parties and sports tickets, passed out to those that recommend their funds - and we’re ok with that.

Our funds are highly diversified, low cost, purchasing every stock on the market - some of those companies will do poorly but they’ll be overshadowed by those that do well. There’s no guessing, no gut feel and no guesswork - it’s boring and it works. And we’re ok with that.