Written by: Ryan Bouchey
It’s no secret that we at Bouchey Financial Group are huge proponents of using Exchange Traded Funds (ETF) to build diversified, risk-based portfolios for our client’s. We’ve written about them in the past, but new data has recently come out to highlight the advantages of index-based ETF’s over active management when it comes to performance.
The commentary leading into and during 2014 was that investors would most likely see increased volatility and you wouldn’t be able to rely on ETF’s like you have in the past because they couldn’t handle the volatility. They also said active managers would outperform the indexes given these changing market conditions. The three figures below will certainly highlight how wrong this commentary was and why ETF’s still provide the best way to access an asset class while also mitigating risk:
1) According to Morningstar Inc, only 13% of actively managed, large-company stock funds beat the S&P 500, which is their benchmark.
2) According to Morningstar Inc, as of December 19th more than 79% of US stock funds under-performed their benchmark, which is what investing in an ETF gives you.
3) Even hedge funds couldn’t keep up in 2014. The HFRI Equity Hedge Index which tracks the performance of hedge funds, finished 2014 with gains of 2.3%, compared to the S&P 500 return of 13.7%.