http://sensibleinvesting.tv -- the independent voice of passive investing As consumers, we're conditioned to believe that we get what we pay for. That's true on the whole, but not when it comes to investing. Paying more for an active fund because it promises to beat the market sounds a good bet; but in practice hardly any of them do. So what are you paying for? Consistent under-performance - in some cases almost 70% less than the benchmark index. Featuring recent research by AWD Chase De Vere for the Sunday Telegraph. You might find what I'm about to tell you counter-intuitive, even hard to believe. But listen carefully. Because it'll almost certainly leave you better off. As consumers, we're conditioned to assume that some things cost more than others because they're better. And, generally speaking, that's true. But, in the world of investing, it's not. Broadly, there are two types of investment fund - active funds and passive funds. With an active fund you pay an expert to research individual shares or bonds and buy or sell accordingly. A passive fund, on the other hand, simply tracks a particular market, and is therefore cheaper. Now, the message the active fund management industry likes to convey is that although you pay more for an active fund, you get a better return. What it doesn't want you to know is that the figures tell a different story. Take this latest research by AWD Chase de Vere for the Sunday Telegraph. In almost every sector the average active fund has failed to beat the relevant stock market over both five and ten years. In some cases the average fund has delivered almost 70 per cent less than its relevant benchmark index. Over ten years, in most sectors, more than twice as many active fund managers underperformed when compared with those who beat the market. In some sectors just one manager beat the market for every six that didn't. So that's right, when you invest in an active fund, you're generally paying more - in some cases, much more - for consistent underperformance. Now, proponents of active fund management - in most cases, the active fund managers themselves - often argue that although there may be a case for passive investing in highly researched markets, investors need to pay for expertise elswehere. Again, this latest research by AWD Chase de Vere shows the very opposite is true. Fund managers running emerging market and Japan funds have an even worse record than those managing UK and US funds. Let's look at each sector in turn. Over ten years, after charges, the average fund in the UK All Companies sector delivered 123 per cent. That compares with a rise of 132 per cent rise in the FTSE All Share Index -- an underperformance of 9 percentage points. In the US, the average actively managed fund underperformed by 11 percentage points. In Europe the figure was 16. In Asian equities, the average active fund underperformed the index by 45 points. In the emerging markets sector, the difference was a staggering 68 percentage points. Of the Asian funds on offer to British investors, just nine fund managers outperformed, but 31 failed to beat their benchmark. In the emerging market sector, just three fund managers beat the market, while 18 did not. Figures like these are nothing short of scandalous. Here we have a largely self-regulated industry that's using a combination of media exposure and advertising to perpetuate the misconception among the general public that paying more for a fund means better returns. In truth, it's completely the other way round. What these companies should be telling you is that it's far more logical for people to invest in low-cost index funds instead. Why don't they tell us? Because they make far more money out of active funds. So, come on... It's time to wise up - to stop subsidising the speculators in the City - and start keeping more of your investments for yourself. For more videos like this one, visit http://sensibleinvesting.tv
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