Are active funds better than passive funds?

Over the 10 years through December 2023, over 29% of active funds in the cheapest quintile beat their average passive peer, compared with 18% for those in the priciest quintile. The Active/Passive Barometer helps investors calibrate the odds of succeeding with active funds in different categories.

How do you know if a fund is active or passive?

Some active funds closely replicate the asset weightings of an index fund, but at a higher price point. Divide a fund’s active share or tracking error by its expense ratio and compare it to a custom benchmark or peer group. This gives you one indicator of the difference between an active fund and its cheaper passive alternatives.

What is the difference between active and passive fund managers?

For example, an active fund manager has discretion in security selection, as well as the timing of trades. In contrast, most passive fund managers can only buy and hold the securities that are in a benchmark index, such as the S&P 500. Index fund managers must also passively hold the securities at roughly the same weighting as the index.