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How to weigh up deciding between actively managed and passively managed unit trusts

by , 19 November 2015

Not all unit trusts are managed the same. The fund manager either actively manages the unit trust to try to beat its benchmark or passively manages the unit trust aiming to track the performance of its benchmark.

As an investor, there are a few things you need to consider before deciding which unit trust management is for you…


The downside of actively managed unit trusts

 
Fund managers of actively managed unit trusts have a big task to achieve. The fund manager needs to beat the performance of his benchmark index. This can then justify the bigger fees investors pay to invest in such a fund.
 
This is a much harder job than a fund manager of a passively managed unit trust where he just has to replicate the benchmark index as closely as possible.
 
The figures tell us that it’s relatively rare for a fund manager to beat its benchmark index. So for many investors, they stick with passively managed unit trusts.
 

What if you opt for actively managed unit trusts?

 
One thing you need to be aware of is passively managed funds masquerading as actively managed funds.
 
In this realm of unit trusts, many fund managers are too scared to stick their necks out to make investment choices against the majority. And this means that a number of fund managers end up running passively managed funds just to stay on par with the market.
 
If they don’t at least achieve this they run the risk of losing their jobs. If an actively managed fund isn’t performing, it won’t attract investment, which means fees are less.
 
If you invest in this sort of fund, you’re wasting your money, plain and simple.
 
Passively managed unit trusts can prove to be a good alternative if this is something you’re worried about.
 
So there you have it. How to weigh up deciding between actively managed and passively managed unit trusts.
 
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