By entrusting your money to a professional financial advisor, like a private banker or fund manager, you might expect to get higher financial returns than those of the market. Well the truth is nobody systematically beats market in the long term!
Let’s imagine that you entrust some money to a professional fund manager, active in Belgium, who invests in global equities. If professional fund managers were better than the average investor, half of them should systematically beat the world market.
However, in any given year, only 38% of fund managers succeed in beating global indices. In other words, 62% fail to beat the market. Wait a minute you might say! Those who beat the market are certainly better in the long term, right?
Unfortunately not. The trend observed in a given year only exacerbates year after year. Indeed, only 15% of fund managers in Belgium beat the market two years in a row. After three years, merely 7% beat the market, less than one out of ten. The probability that you select a manager able to beat the market five years in a row drops to only 1%. Finally, absolutely no fund manager in Belgium beat the market more than five years in a row over the last ten years! The same results are observed with foreign managers.
The probability of systematically beating the market over the long term is close to the zero and could only be explained by pure luck. Don’t bother trying to beat the market, simply follow it with a tracker like an ETF (Exchange Traded Funds).
This analysis has been performed by easyvest based on data available on Morningstar and Bloomberg on the period from 2005 to 2015 for all global large cap blend equity capitalization funds denominated in euro with a track record of at least 10 years (45 funds) and available for sale in Belgium. Their performance is compared to the MSCI World All Country Net Total Return index denominated in euro.
This article was written when easyvest was authorized and regulated by the FSMA as an agent in banking and investment services. Today, easyvest is a brand of EASYVEST NV/SA, authorized and regulated by the Belgian Financial Services and Markets Authority, with company number BE0631.809.696, as a portfolio management company and as a broker in insurances, with its registered office in Rue Gachard 59, 1050 Brussels, Belgium. Copyright 2023 EASYVEST NV/SA.