Hey everyone,
I’ve been investing in mutual funds for a while now, and lately I keep running into articles about how actively managed funds are losing ground to low-cost index funds and ETFs. With the market evolving so much (and with all the talk about inflation, volatility, and global uncertainty), I’m really curious—are active funds still worth their higher expense ratios these days?
For those of you who stick with actively managed funds:
How do you decide which managers to trust?
Do you look at things like manager tenure, consistency, risk-adjusted performance, or something else?
Have you found any sectors or styles where active managers are actually beating the benchmarks lately?
I know everyone’s experience is different, so I’d be interested to hear any positive—or negative!—stories you’ve had with active funds recently. Are there any fund families you swear by, or some you won’t touch?
Appreciate any insights or data—always looking to learn from this community!
Thanks!
Comments
A slight editing suggestion for your post would be to change the category of your discussion to 'Fund Discussions' from 'Off-topic'. It's certainly very much ON topic and you'll get more eyes and responses on that section of the discussion board.
Are Actively Managed Mutual Funds Still Worth the Cost in 2025?
That’s a subject of debate. So many ingredients go into that decision, including a fund’s strategy, your own age, your expected holding period and benefits that may only be perceived by you. I’m pretty “old-school” and hold more actively managed OEFs and CEFs than I do lower cost ETFs. But that’s just me.
How do you decide which managers to trust?
I’m not one to gravitate to certain names. Prefer team managed over individuals. However, it’s difficult not to be somewhat influenced by a manager’s comments in fund reports and in the media or to stories (Barron’s, etc) about him or her. Listen, but take with a large grain of salt. Broadly speaking, the fund’s long term track record may be indicative of the quality of management over many years. I also like to see how a fund held up in bad years like 2008 & 2022. Yahoo Finance allows you to view this.
Do you look at things like manager tenure, consistency, risk-adjusted performance, or something else?
I try to look at everything. But don’t over-think / over-compare. For example, not all “long-short” funds operate the same way. Some are much more cautious and will lag during bull markets (like now) but hold up much better in bad markets.
Have you found any sectors or styles where active managers are actually beating the benchmarks lately?
I don’t run those types of comparisons. Maybe I should. Benchmarks reflect the wisdom of the crowd. The more “recent” the numbers, the less value I see in them - other than perhaps as a contrarian indicator. Look under the hood to what a fund invests in. Take the fund’s ER into consideration. With bond funds, check the credit quality. For example, if you want to own a junk bond fund that's fine. But don’t stumble into one believing it’s something else. Check the holdings first.
I know everyone’s experience is different, so I’d be interested to hear any positive—or negative!—stories you’ve had with active funds recently. Are there any fund families you swear by, or some you won’t touch?
Most providers have one or two rotten eggs in their arsenal and at least one or two superior offerings. One distinguishing factor is fee structure. Generally, lower fee providers are better. I use Morningstar’s fund analyses for insights into the management company’s integrity, depth of managerial ranks, recent manager churn, compromising associations, lawsuits, etc. I think actively managed OEFs (traditional mutual funds) with long solid records are more likely to retain investor assets when the going gets tough compared to ETFs that can be traded throughout the day. Should be more stable in severe melt-downs. We’ll have a better understanding in 25 years when looking back at today’s euphoria.
Specific funds? If something has been “over achieving” the past few years, see if it holds gold. That can boost returns when the metal is hot as it is now. But will turn against you if the metal plummets. In past cycles the gold miners have lost over 50% of their value in 12-18 months. The metal is a bit less volatile, but still subject to very large swings.