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Why active funds underperform even when the manager picks well
The managers running the biggest active funds picked stocks that beat the market in 2025 — and most still lagged their benchmark. A Morningstar do-nothing experiment and a body of academic research explain why active funds underperform even when the picking is good: skilled buying undone by poor selling, the hidden cost of trading, and the incentives that keep managers churning. The UK evidence points the same way.
Robin Powell
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You check your energy bill. Why not your investment fees?
You check your energy bill religiously. When your provider raised charges by £12, you noticed within days. You've compared broadband three times this year, saving £8 monthly. But when did you last calculate your all-in investment fees? That £3 broadband overcharge equals £36 yearly. A 1% overcharge on a £500,000 portfolio equals £5,000 annually—139 times more. Yet the smaller cost receives obsessive attention whilst the larger goes unexamined for decades. This article reveals
Robin Powell
Oct 27, 20259 min read
What active funds and budget flights have in common
Yes, annual management fees for actively managed funds are far higher than they are for index funds. But it’s the linked costs of active funds that people don’t consider, and those can be even more significant. Anyone who uses so-called budget airlines will be familiar with what economists call linked costs, or junk fees as Americans tend to call them. Linked costs are secondary expenses that arise as a result of buying a primary product or service. So, for instance, you
Robin Powell
Dec 11, 20244 min read
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