Why index tracking is not as attractive locally as US numbers suggest
It is a misperception that active equity managers continually underperform their benchmarks
Passive investing is gaining ground in SA, mainly due to the (generally) lower fees involved compared with actively managed funds but also based on misperceptions stemming largely from the US experience. Fundamental differences with the local market means that passive investing may not be as successful here as in the US. One of the common misperceptions is that actively managed funds, with higher fees, are not delivering market outperformance to merit those higher fees, nor are they beating passive products on an after-fee basis. However, the truth is that outperformance is cyclical, as with most investments. In the US, the decade of the 2000s was an excellent one for active US equity fund managers, with the median active manager outperforming peer passive funds strongly in eight of the 10 years. More recently, however, the median active US equity fund manager has underperformed the index in six of the past seven years, generating the impression of continually poor active performanc...
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