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Steve and Connie Ballmer are splitting their $8 billion philanthropy into three so the people closest to the work can decide how the money is spent

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Finance

The Investing War Is Over, and the Index Fund Won

By
Matthew Heimer
Matthew Heimer
Former Executive Editor, Features
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By
Matthew Heimer
Matthew Heimer
Former Executive Editor, Features
Down Arrow Button Icon
January 27, 2016, 9:00 AM ET
Sources: ICI; Goldman Sachs Global Investment Research
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If you want customers to pay more for something, you need to convince them that it’s better than the cheaper options. Investment companies that offer actively managed mutual funds are finding it harder to close that deal. More investors are pulling their money out of actively managed funds (average expenses: about 0.8% of assets annually) in favor of ETFs and index funds (average expenses: about 0.2%) that keep costs down by simply mimicking the markets. Meanwhile, a growing body of research suggests that very few of the pricier active funds outperform the indexers over the long term.

Active fund managers have often argued that they’re particularly good at beating the broader market (or at least at losing less money than the broader market) when stocks are falling. And active funds did outperform index funds in 2016, losing 2.2% on average while the average indexer lost 2.7%, according to Morningstar (MORN). But fewer customers are sticking around to see if the managers can keep that streak alive in 2016.

For more on the economy, watch this Fortune video:

A version of this article appears in the February 1, 2016 issue of Fortune.

About the Author
By Matthew HeimerFormer Executive Editor, Features
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Matt Heimer previously oversaw Fortune's longform storytelling in digital and print and was the editorial coordinator of Fortune magazine.

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