Passive funds beat active funds once again – research

Mixed graph colourPassive funds outperformed active funds by 4.73% on average over five years ending April, in 14 asset classes, according to research by Charles Stanley Pan Asset.

The fiduciary and multi-asset investment manager says passive funds are not only cheaper than active funds but also perform better on average, net of costs.

According the research, a passive strategy could give pension schemes with more than £500 million (€629 million) an additional £3.8 million return per year.

To the end of June last year, the same approach would have produced an outperformance of 6.5%.

"This additional revenue has been coined the passive fund premium, which is the return to be expected from a portfolio of passive funds over an equivalent portfolio of active funds," Charles Stanley Pan Asset says.

Bob Campion, head of institutional business, says the findings hold for schemes of all sizes.

"We have found that this is true for larger institutional pension schemes just as it is for smaller schemes," Campion adds.

"By taking a passive approach to investing in all asset classes, pension funds simplify their investment process, cut costs and should find long-term performance improves."

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