I am a big (huge) believer in using passive index funds for investing. Why? Here are a few reasons:

1. Fees are much, much lower. I hate paying fees!

2. Most actively managed mutual funds fail to beat their index. So why pay more for poorer performance.

3. Some so-called ‘actively’ managed funds are closet indexers. So why should I pay more for the same performance as an index.

4. I do not believe that the active managers can predict the future any better than I can.

5. I don’t have to worry about a great manager leaving my fund and being replaced by a recent graduate with no experience. A monkey can run my index fund.

The Globe and Mail’s Rob Carrick wrote an interesting article titled “It’s Chest-Beating Time for Index Beaters.” In this article, Rob wants to give active managers their due. Rob starts the article by saying

“The highest achievement of a mutual fund is to consistently beat the stock or bond index against which its performance is measured.

The reason: Most mutual funds fail to match the returns of their benchmark indexes. This explains why some people prefer index investing, where you simply buy a mutual fund or exchange-traded fund offering the return of any one of dozens of different North American and global stock and bond indexes.”

In my point 2 above, I say that “most actively managed mutual funds fail to beat their index.” Well, Rob has compiled a list of actively managed funds that have consistently beat their index.

Rob had some criteria before picking these winners:

1. Compound average annual 10-year return to Jan. 31 was greater than the stock or bond index used to gauge its performance,

2. A fund must not have endured severe and extended slumps during the 10 years, or showed a pattern of being hot one year and stone-cold dead the next.

Using these 2 criteria, Rob has managed to come up with a small list of consistent winners. In the end, “only a minority of mutual funds manage to beat their benchmark stock or bond indexes over the long term.”

Although this was an interesting article and consistently active fund managers deserve their due, I will stick with my boring, conservative and easy to run index based portfolio. As we all know, past performance is not an indicator of future performance.