Which is better PF or mutual fund
What is the difference
between funds and ETFs?
Does more diversification lead to different results?
The authors examine diversification as a further variable. To do this, they compare portfolios that contain two or more funds in one asset class - e.g. several equity funds or several pension funds. However, the more actively managed funds of an asset class were included in the examined portfolio, the worse the result for the fund manager.
"The probability of index fund portfolios outperforming increases if the portfolio contains 2 or more actively managed funds per asset class." (A Case for Index Fund Portfolios, 2017)
Even the authors are surprised by this result: "This study deepens the evidence that a portfolio consisting solely of index funds is difficult to defeat." The only remaining task is to find a simple and inexpensive way to get there.
Result: “Overwhelming evidence” for passive ETF / index fund strategies
With their study, the authors can replicate the experiences of investors who, at the time of their investment, had no way of knowing which funds would do well and which would not do well. “The likelihood of outperformance using the simplest index fund portfolios started in the 80th percentile and increased over the investment period. A broader diversified portfolio with several inexpensive index funds increased the number to close to the 90th percentile. ”From their results, the authors derive“ overwhelming evidence ”for portfolios of cheap ETFs and index funds at any time and conclude:
"These results have significant and practical implications for investors looking for a strategy that will give them the best opportunity to achieve their investment goal."
Which category does the ETF Robo Advisor belong to?
The ETF Robo Advisor is a globally diversified portfolio with ETFs and index funds from Vanguard and thus a passive investment. The total costs are 0.48% p.a. and are therefore significantly lower than for actively managed mixed funds (Ø 2.26%). With the ETF Robo Advisor, private investors can determine their equity quota themselves and build up a long-term wealth. You can find an overview of which ETFs and index funds are included in the ETF Robo Advisor and in which sectors you invest here.
Selection of the examined funds
The authors used only investable and available mutual funds for all scenarios. The selection of ETFs and index funds fell on those with the longest performance history in each category. Vanguard funds were chosen particularly often because the US provider first made index funds accessible to the mass market and has the longest track record.
* The study mainly speaks of index funds. The authors use this term "in the traditional meaning for low-cost, broadly diversified funds or exchange traded funds (ETF) that follow the market, weighted according to market capitalization".
** WeltSparen, own calculations.
Source: Ferri / Benke (2017): "A Case for Index Fund Portfolios - Investors holding only index funds have a better chance for success" (Whitepaper, PDF, English).
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