Indexing During the 2010s
Index funds delivered as promised.
The Active/Passive Barometer
Last Friday's column assumed its premise, that index funds comprehensively bested the average actively managed fund during the past decade. Several readers wished to hear more. What evidence supports such a broad conclusion? Enter the Active/Passive Barometer, authored by Morningstar's Ben Johnson. The Barometer's latest edition evaluates fund performance through December 2019, thereby permitting a complete view of the preceding decade.
The Barometer differs from other studies by creating its passive benchmarks from funds, not indexes. Typically, calculations of active versus passive performance compare active funds against theoretical benchmarks. This decision is acceptable for back-of-the-envelope efforts, but as those benchmarks bear no costs, it places active funds at a disadvantage. The Barometer's approach levels the playing field.