For decades, UK retail investors have been sold a myth. The UK Investment Industry have woven the tale that higher fees for active management gets you higher performance, especially when times get tough, compared to passive / index managers. When markets get tough, they can switch into cash or more defensive shares to protect your hard-earned savings. Back in 2020, the CEO of Schroders said that the weakness of index funds would be revealed in any downturn as “The shortcomings of mechanised trading, better known as passive trading, will come into sharper focus”.
The data shows passive investment management is well and truly winning the day. SCM Direct analysed the 2022 year to date performance of every geographical Investment Association equity sector against a comparable index benchmark, and found the average underperformance was c. 3.9%. In 17 out of the 18 sectors analysed, the average fund underperformed a comparable benchmark. The one sector which outperformed was European equities, but the difference was only just above 0.
