The one question every investor must ask:

Have my active funds outperformed passive funds?

A gavel hitting a block of wood with lettered blocks spelling 'EVIDENCE' in front.

Comment on evidence used

Many studies have compared active and passive funds, and the conclusion is consistent: active funds, after fees, fall behind. The most widely recognised research is the SPIVA report, published annually by Standard & Poor’s, which is considered the global standard for comparing active funds against the benchmark they aim to beat.

The evidence, both worldwide and in South Africa, shows that index funds consistently outperform the majority of active funds after fees. Thus, the most logical way of investing is to track the index through a passive fund at the lowest possible cost.

Global Evidence

The chart shows how South African active funds that invest globally have performed compared to the S&P Global Equity Index, after fees, over different time periods.

The S&P Global Equity Index tracks hundreds of large companies across developed markets. It is weighted by market value, meaning larger companies are weighted more than smaller ones. By following this index, investors gain broad exposure to the global market, and it serves as a benchmark for measuring active fund performance.

  • 1 year: 7% outperformed

  • 3 years: 5% outperformed

  • 5 years: 3% outperformed

  • 10 years: 0% outperformed the index

Importantly, “zero” does not mean that these active funds lost money. It means that over the ten-year period (2014–2024), none of them grew as much as the index itself.

Bar chart showing percentage of actively managed funds that beat their passive benchmark as of December 31, 2024. The chart compares 1-year, 3-year, 5-year, and 10-year periods. The highest percentage, 7%, is for 1-year funds, followed by 5% for 3-year, 3% for 5-year, and 0% for 10-year funds. The data source is S&P World, Global Equity.

Local Evidence

The same pattern appears when investors invest their money locally. The chart shows how South African active equity funds have performed against the S&P South Africa 50 Index, which tracks the 50 largest companies in South Africa in proportion to their market value.

This index represents a large part of the South African market and serves as a benchmark to measure how well active funds have done against investing in South African companies.

The results are clear: the longer the time horizon, the fewer active funds manage to outperform.

S&P SA 50:

  • 1 year: 80% outperformed

  • 3 years: 53% outperformed

  • 5 years: 24% outperformed

  • 10 years: 8% outperformed the index

Bar chart showing the percentage of actively managed funds that beat their passive benchmark as of December 31, 2024. The chart displays data for 1-year, 3-year, 5-year, and 10-year periods. The percentages are 80%, 53%, 24%, and 8%, respectively. The funds are categorized as S&P South Africa 50 and South African Equity.

The Long-Term Picture is clear

As shown above, the evidence is clear: once fees are taken into account, active funds underperform the index (benchmark) they aim to beat. Over 10 years the gap is already significant, and over 15 or 20 years, the timeframes that matter most to long-term investors, the gap only widens.

It makes the most sense to invest in the index, which outperforms the active funds that try to beat it, through a passive fund at a low cost. These passive funds that invest in the index with the low costs outperform the active funds after fees too.

A red financial chart showing a downward trend with a downward arrow.

The next step is to understand why active funds fall behind — and why they will keep doing so.

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