Passive investing wins again
Evidence in favour of index funds grows more compelling despite concerns over AI stock boom
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Every year S&P Global Ratings publishes reports comparing all actively managed investment funds with various stock indices. These reports are considered the gold standard for evaluating the performance of active fund management with their index-fund alternatives.
The bottom line from the year-end 2024 report out this month is that there were no surprises. US passive index funds in 2024 outperformed about two-thirds of actively managed funds. That is consistent with past results that also show that one-third of the managers who outperform in any single year are generally not the same as those who win the comparison in the next.
When you compound the results over 20 years, about 90 per cent of active funds produce inferior returns to low-cost index funds and indexed exchange traded funds. Equivalent long-term results were recorded for funds focused on developed economies, emerging markets and bonds. Even for small-cap funds, which had a good 2024, only 11 per cent outperformed over the past two decades.
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