If you're new to investing you've probably at least heard the term 'index fund' by now, while if you've been investing for some time you'll know that 'index funds' make for truly formidable competition.
The objective of an index fund is to mimic a designated grouping of stocks, for example the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). Investing in an index fund is often described as a 'passive' investment strategy as it allows an investor to attain the returns of an index in a low cost, simple fashion without needing to individually pick stocks.
For 'active' investors who have chosen to build a portfolio of individually selected stocks they will be all-too-aware that for the most part, their performance will be judged against (or benchmarked to) an appropriate index. Outperforming that index over the long-run is no simple task and in fact the best investors in the world generally only beat it by a few percentage points over the long term!
A recent article published in the Financial Standard reported on data provided by Rainmaker, stating that "funds allocated to index strategies grew 28% in the 12 months to end of March 2014, taking the total portion of the funds management market it represents to a record high of 19%."
It's a large increase and it's good to see. The reason it's good to see more people utilising an index fund strategy is that many investors simply don't have the required time to devote to their portfolio to successfully outperform the market.
By the same token, even accurately identifying fund managers such as the two highlighted below which have a history of outperformance can be difficult. Many investors are simply unaware of the wide variation in returns and end up with their money in poorly performing funds that ultimately result in their portfolio achieving a sub-par return compared with an index fund.
Two fund managers which have a record of outperformance are Perpetual Limited (ASX: PPT) and Platinum Asset Management Limited (ASX: PTM). Perpetual and Platinum have both historically been capable of delivering a return above benchmark on their funds under management. For example the Perpetual Wholesale Australian Fund has outperformed its benchmark by 2.7% per annum (pa) since inception in February 1997. Meanwhile the Platinum International Fund has beaten its benchmark by 3.2% pa over the past decade.
