One ETF To Rule Them All

One ETF To Rule Them All
Theodora Lee Joseph, CFA

11 months ago1 min

Investing isn’t easy, not when there are thousands of options, from single stocks, to active funds, to ETFs.

But the truth is, you really don’t need to look too far. See, there’s one investment that has stood out over the past three decades – the S&P 500 ETF – and you’d have done well investing in it. Since 1992, in fact, it’s outperformed 90% of actively managed funds. The chart above shows the distribution by annualized returns of all actively managed US funds that survived the period. Higher fees, amongst other factors, are one of the biggest reasons explaining this performance gap.

History has proved that stock-picking is notoriously difficult, even for professional money managers. So before you seriously consider investing in an active fund, it’s worth evaluating whether the higher management fees you’d be paying are justified. After all, it’ll have to sustainably beat the S&P 500 after fees to be worth your while. To find that, look for a fund with a low turnover, highly concentrated positions (not more than 20 ideally) that demonstrate the managers’ high conviction, and a high tracking error to show that they’re not blindly following the market. A low turnover indicates a buy-and-hold strategy, which reduces churn and trading costs. Unfortunately, funds like these aren’t easy to come by. But, when all else fails, investing in a market ETF isn’t a bad call. Sometimes, when it comes to investing, boring can be awfully good.



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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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