• / Free eNewsletters & Magazine
  • / My Account
Home>UPDATE: More investors are viewing active funds as a rip-off

UPDATE: More investors are viewing active funds as a rip-off

UPDATE: More investors are viewing active funds as a rip-off

09/26/2017

By Ryan Vlastelica

Fewer than half of investors say asset managers provide value for their money

The fund industry has some trust issues.

According to an annual survey put out by Natixis Global Asset Management, large percentages of individual investors are skeptical about active fund managers, viewing them as more focused on short-term results rather than long-term gains, and offering little value to justify the higher fees they charge.

Fewer than half of surveyed investors--49%--said asset managers provide value for their money, while 77% said that asset managers need to be more transparent about the fees they charge.

According to data from Morningstar Direct, the median actively managed mutual fund charges an expense ratio of 1.05% (for actively managed exchange-traded funds, the median is 0.67%). To compare, passive funds--which mimic an underlying benchmark index by holding the same stocks, and in the same proportion--charge a median of 0.5%, though many of the most popular go for less than 0.1% (the median is roughly the same for both index-based mutual funds and ETFs).

The degree to which an actively managed fund differs in composition from its closest benchmark (for example, a large-cap equity fund and the S&P 500 ) is called active share, and most investment experts agree that it is extremely hard for an active fund to have the potential to do notably better than its underlying benchmark with an active share below 80%.

More detail:This figure helps explain why so many active managers underperform (http://www.marketwatch.com/story/this-figure-helps-explain-why-so-many-active-etf-managers-underperform-2016-12-14)

©2017 Morningstar Advisor. All right reserved.