The tide has turned. When I wrote Fuzzy Future for Fundies almost a year ago, the concentrated nature of the ASX All Ordinaries Index was the only thing holding back the index investing wave.
So far Australia’s highly paid fund managers have escaped relatively unscathed. This could be because interest rates have been relatively high here, property prices have kept rising and attractive, low cost product is not yet as available here as it is overseas. The past 12 months have highlighted how useless the All Ordinaries Index is as a low risk way to access the sharemarket. Its absurdly high weighting to banks and resources companies meant that it underperformed an equal weighted index by some 7 per cent during the past financial year.
Since October last year, however, banks and resources companies have dramatically outperformed the rest of the market. Most active managers are underperforming the index. And that’s the window the ETF providers were looking for. After a year of puff pieces about outperforming fund managers, the Financial Review is full of articles on the benefits of low-cost passive funds.
Any active fund manager who thinks this trend is going to miraculously disappear is kidding themselves. I discussed the issue with James Daggar-Nickson on Sky Business yesterday.