Unlike actively managed equity mutual funds, index equity mutual funds track the returns of a particular index, such as the S&P 500 or S&P 100.
According to a study of fund performance in the first half of the year, a majority of actively managed equity funds underperformed the stock indexes they are supposed to beat.
For one AIG Valic plan, only 3 of 16 actively managed equity funds have beaten their indexes over ten years or the life of the funds.
This leads to the question: What percentage of investors have enough skill (or luck) to select actively managed equity funds that beat the comparable index funds?
Figure 1 is a performance payout chart for large-cap U.S. actively managed equity funds compared to the Vanguard Total Stock Market Index Fund (VTSMX).
Last year, the average equity index fund had assets of $1.6 billion under management, compared with $374 million for actively managed equity funds, according to the institute's data.
"The one thing investors can control is how much we pay for our investment management and investment accounts". Actively managed equity funds had an average expense ratio of 0.92percentt in 2012, far higher than the 0.13percentt average annual cost charged by index equity funds, according to Investment Company Institute and Lipper data.
From 1997 to 2011, the average expense ratio of equity index funds fell 0.13 percentage points, or 13 basis points, while the average for actively managed equity funds dropped 11 basis points.
As of 2017, the average expense ratio for an actively managed equity mutual fund was around 0.78%, whereas the average expense ratio for index equity mutual funds was 0.09%, according to the ICI.
Globally, investors poured $18.2 billion in index equity and fixed income products while redeeming $22.3 billion from actively managed equity and fixed income portfolios, the company reported Monday.
