ETF vs Active Funds: Why 90% of Fund Managers Lose Over 10 Years
Your bank sold you a fund "managed by experts" with fees of 1.8%/year. The result after 10 years: it underperformed the MSCI World index. You're not alone. According to SPIVA 2024 data, 90% of active large-cap funds do exactly the same. Here's why, with the numbers to prove it.
On €100,000 invested at 7% gross over 30 years: with an ETF at 0.20%/year = €543,000; with an active fund at 2%/year = €324,000. The gap: €219,000, purely from fees.
What SPIVA 2024 data actually shows
SPIVA (S&P Indices Versus Active) is the global benchmark for comparing active and passive management. Results for active large-cap European equity funds in 2024:
| Time horizon | % of active funds underperforming their index |
|---|---|
| 1 year | 60% |
| 3 years | 74% |
| 5 years | 82% |
| 10 years | 90% |
| 20 years | 95% |
In other words: an active fund has a 1-in-10 chance of beating its index over 10 years. Over 20 years, 1-in-20. And these figures are after accounting for survivorship bias (funds that closed because they underperformed are excluded from many studies, which still overestimates the survivors' numbers).
The mechanics of fees: the silent enemy
Here's the concrete difference based on annual management fee levels. Assumption: €100,000 invested, 7% gross annual return.
| Product type | Annual fees | Net return | Capital at 10 years | Capital at 20 years | Capital at 30 years |
|---|---|---|---|---|---|
| Passive ETF (WPEA/DCAM) | 0.20% | 6.80% | €193,000 | €372,000 | €543,000 |
| Standard passive ETF (CW8) | 0.38% | 6.62% | €188,000 | €354,000 | €516,000 |
| "Budget" active fund | 1.00% | 6.00% | €179,000 | €321,000 | €446,000 |
| Standard active fund | 1.80% | 5.20% | €166,000 | €276,000 | €365,000 |
| "Premium" active fund | 2.50% | 4.50% | €155,000 | €241,000 | €305,000 |
Between the best passive ETF (0.20%) and the most expensive active fund (2.50%): €238,000 gap over 30 years on an initial €100,000. Even if the active fund maintained exactly the same gross return (which average funds don't), fees alone erase the equivalent of 10 years of gains.
Why active managers can't consistently win
The mathematical reason is simple and definitive: the sum of all investors is the market. For every active fund that outperforms by X%, another underperforms by X% (before fees). After fees, the average of all active funds is below market performance by definition.
This is the "zero-sum game" of active management: funds that beat the market can only do so by taking returns from other funds. Over the long term, fees make this game a losing proposition for the average investor.
The persistence problem
Even the rare funds that outperform in one period don't maintain that outperformance. Morningstar has shown that among active funds in the top performance quartile over 5 years, fewer than 25% remain in the top quartile over the following 5 years. Past performance is a very poor predictor.
When active funds can (sometimes) make sense
There are situations where active management might justify its fees:
- Inefficient markets: Small caps, certain emerging markets and high-yield bonds are less covered by analysts. There are more arbitrage opportunities.
- Niche strategies: Some infrastructure, private equity or real estate funds have no perfect ETF equivalent.
- Protection strategies: Some alternative funds (long/short) can cushion crises, at the cost of very high fees.
But for the vast majority of individual investors targeting retirement through equities, ETFs remain statistically superior.
The best ETFs to replace your active funds
If your active fund is meant to give you exposure to large global companies (which is the case for 80% of bank-sold funds), here are the ETF equivalents for French investors:
| ETF | Index tracked | Fees | PEA-eligible | ISIN |
|---|---|---|---|---|
| WPEA | MSCI World | 0.20% | Yes | IE0002XZSHO1 |
| DCAM | MSCI World | 0.20% | Yes | FR001400U5Q4 |
| CW8 | MSCI World | 0.38% | Yes | LU1681043599 |
| PSP5 | S&P 500 | 0.12% | Yes | FR0011871128 |
These ETFs track indices that your active funds have claimed to "beat" for years. The result in 90% of cases: they don't beat them, they underperform them.
How to check if your active fund is good or bad
Three simple steps:
- Search for your fund's full name on Morningstar.com
- Compare its 10-year performance to its benchmark index
- Check management fees (TER or OCF) in the KIID (Key Investor Information Document)
If fees exceed 0.5% and 10-year performance is below the index, you have a clear answer.
On top of the announced TER (management fees), add sometimes: subscription fees (0-5%), redemption fees (0-1%), performance fees (5-20% of outperformance). The real cost of an active fund can exceed 3%/year. Always request the complete KIID.
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Start for free →Frequently asked questions
Are the active funds in my life insurance (assurance-vie) any good?
Generally no. Most unit-linked funds (UC) offered in French assurance-vie are active funds with fees of 1.5 to 2.5%/year, plus the insurer's fees (0.5 to 1%/year). The best assurance-vie providers now offer ETFs as unit-linked options. See our assurance-vie beginner guide.
Are all ETFs passive?
No. There are active ETFs (which aim to beat the index via an algorithm or stock selection). They have higher fees (0.5-1%/year vs 0.2%/year for passive ones). For a long-term investor, passive (index-tracking) ETFs are statistically superior. Identifiable by their mention of "UCITS ETF" and their replication of a specific index.
Is there risk in switching from active funds to ETFs?
The market risk stays the same. The exposure to equity markets is similar. Tax risk exists if you're sitting on gains in a regular brokerage account (selling triggers taxation). Inside a PEA, internal switches don't trigger tax. Consult an advisor for your specific situation.
Are ETFs riskier than active funds?
No. An MSCI World ETF is exposed to the same markets as a global large-cap active fund. The market risk is identical. The difference: the ETF has fees 5-10x lower and doesn't take on additional risk through potentially poor stock selection.