In theory, when markets are volatile, or during a sustained bear market, actively managed funds should be at a distinct advantage to trackers as fund managers should be able to either build-up their cash positions or move into more defensive sectors within the market.
Alas, the flexibility offered by actively managed funds doesn’t always translate into creditable performance. Last year three out of every five large-cap US funds lagged behind the S&P500 index.
Of course, there are still a great many managed funds that do outperform their benchmarks, but it’s hardly surprising that Warren Buffett believes that, over time, the average investor is usually best served by simply buying into low-cost index funds.
The iShares S&P 500 ETF offers a cost effective way in which to track the broadest of the US industrial indices. Had we reviewed this fund in May of last year then the absolute returns would have seemed rather more attractive, but if you still have faith that US industrial production will recover once normal service is resumed in the finance sector, then you should be thinking in terms of when to take advantage of the current low valuations.
Many economic commentators take the view that the US will be the first western economy to recover from the current downturn, but even the most optimistic assessments don’t anticipate this happening before the third-quarter of this year, so it is very possible that the index will breach its current 12-month low of 752.44 recorded last November.
Source: Morningstar and iShares
Top ten holdings
|Proctor & Gamble||2.34|
|Johnson & Johnson||2.11|