The next-level passive equity strategy for ETF investors
Passive funds tracking multi-factor indices can potentially give better risk-adjusted return
Exchange-traded funds (ETFs) and index funds are winning the returns race if one were to compare their last one- and three-year returns with that of actively managed large-cap funds over the same period. The last one year has been particularly stark with large-cap passive funds delivering 12% average return compared to 6.5% for active large-cap funds. This may just be a current market phenomena, but it brings into question the decreasing ability of a majority of active managers to overtake benchmark returns consistently in the large-cap space. It also highlights the relevance of low-cost passive funds for the long-term equity fund investor, who until now was mostly focused on selecting a good fund manager.