The problem with index funds, especially in Australia

It is a simple and irrefutable fact that, once you subtract their often hefty fees, the average of all actively managed funds’ returns must be less than the market return. Keep your fees low, then, and you will inevitably do better than average. It is compelling logic and explains the rapid growth of index funds, which promise to track a stock market index, like the All Ordinaries Index or the S&P 500, for fees that can be as low as 0.1% per annum. They do have their shortcomings, though, especially for Australian investors. And those shortcomings have been on show the past 12 months. The All Ordinaries Accumulation index hasn't generated a return over the past year. Zero. Our Australian Shares Fund has returned 21%, and most of my cohorts are boasting returns in excess of 10%. You could call it outperformance. But when everyone is doing it, I'd call it index underperformance. The poor old All Ords has 40% of his portfolio in the highly correlated Big Four, BHP and Telstra. Read the full blog (VIEW LINK)

Steve Johnson
Founder & Chief Investment Officer

Steve began Forager Funds in 2009, and now manages approximately $350m across two funds. Offering a listed Australian Shares Fund (FOR) and an unlisted International Shares Fund, Steve focuses on long-term investing in undervalued companies.

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