Passive beats active in new Swedish study

Actively managed Sweden funds fail to live up to expectations and are outperformed by passive index funds, according to the results of new research carried out by students at Uppsala University and reported by Affärsvärlden.

Richard Widerståhl and Martin Jägerstad looked at how 36 actively managed Sweden funds performed against an index, comparing five separate periods in the years 1995-2010.

The study shows that in periods where the overall stock market rose the actively managed funds struggled, with barely a third of the funds beating the index.

They performed better in periods when the stock market was falling, with four out of five such funds outperforming the index.

“With few exceptions the actively managed funds cannot sustain their performance compared to the index over the periods,” said Jägerstad.

Just two of the 36 funds – Didner & George Sverigefond and Odin Sverige – showed a strong ability to outperform over the 15 year period studied.

One explanation put forward is that both funds retained their respective managers through the years, and that these managers were better than others at beating the market.

The study concludes that if the stock market goes up over time then a passive management approach across a broader market index may be better than an active approach the longer the period considered.

“For example, [for] pension savings the difference in returns can become considerable,” Jägerstad said.

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