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This commentary is written by Vanguard Principal, Corporate Affairs & Market Development Robin Bowerman. The title is If you cannot beat the index

It was first published on Monday 23 July 2012

And is read by Michael Mullins

Please remember that advice in this podcast represents a general view. It is recommended that you seek specific financial advice, before making investment decisions.

The great difficulty in selecting a range of individual shares and actively-managed share funds that consistently outperform the market encourages many investors to adopt a core-satellite approach to investing.

Such investors typically hold the core of their share portfolios in low-cost Exchange Traded Funds (ETFs) or traditional index share funds tracking broad sharemarket indices and then hold much-smaller 'satellites' of direct shares and perhaps actively-managed share funds.

Research has repeatedly shown that most actively-managed share funds struggle to even match market returns once their fees are taken into account.

Investment researcher Morningstar reports that:

1 Only 190 (or 37.77 per cent) of 503 of actively-managed, large-cap Australian share funds outperformed the S&P/ASX200 Accumulation Index in the 12 months to June 30.

2 Only 131 (or 29.11 per cent) of 450 actively-managed, large-cap Australian share funds outperformed the S&P/ASX200 Accumulation Index over the three years to June.

3 Only 192 (or 50.26 per cent) of 382 actively-managed, large-cap Australian share funds outperformed the S&P/ASX200 Accumulation Index over the five years to June.

4 Only 61 (or 32.27 per cent) of 189 actively-managed, large-cap Australian share funds outperformed the S&P/ASX200 Accumulation Index over the 10 years to June.

Morningstar measured the funds' returns in after-fee terms.

The higher fees charged by actively-managed funds significantly restricts their ability to at least match their benchmarks.

And that concludes the column

If you cannot beat the index

from Robin Bowerman,  Principal, Corporate Affairs & Market Development at index fund manager Vanguard Investments Australia

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Please remember that advice in this podcast represents a general view. It is recommended that you seek specific financial advice, before making investment decisions.