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Active funds beat trackers, says HL

Actively managed funds are better value for money than index-hugging funds in both bear and bull markets, according to research by Hargreaves Lansdown.

HL compared the annual compound growth rate of funds in the all companies sector over one, three, five and 10 years with the return from the FTSE All-Share index.

It then broke down this return – positive or negative – to determine the outperformance or underperformance for each 0.1 per cent of the annual management charge.

The results reveal that active funds outperform trackers in every timeframe from one to 10 years. Over three years, for example, trackers underperformed by -0.04 per cent on average while active funds outperformed by 0.03 per cent.

Over five years, the gap is even wider, as active funds outperformed by 0.02 per cent while trackers underperformed by -0.08 per cent.

Only over 10 years did active funds underperform – returning -0.05 per cent – although they still outperformed passive funds, which returned -0.08 per cent.

The research reveals the consistency of the top-performing funds. Over 10 and five years, GAM&#39s diversified fund is the best-performing in the sector in relation to its AMC while over three years it is the second best. The special situations funds of Fidelity and Rathbone have also displayed similar consistency, featuring in the top four best-performing funds over 10, five and three years.

HL investment manager Ben Yearsley says: “Over the longer term, with quality fund managers, it is worth paying for active management – you do get better value for money compared to trackers.”

Virgin Money communications manager Erica Bell says: “For most, choosing an active fund is still something of a lottery. We maintain that an index tracker should still form the core of most investors&#39 portfolios.”

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