Do Fund Managers Beat the Index?

Handing your money to a professional stock-picker feels like the careful choice — an expert at the wheel instead of you. It's one of those places where the sensible-feeling option and the evidence point in opposite directions, and the gap costs real money.

The scoreboard

S&P keeps a running tally called SPIVA, comparing active funds against the index they're trying to beat. The latest UK numbers are stark: over ten years, about 94% of sterling-denominated equity funds failed to beat their benchmark. Not in a bad year — over a decade. And the longer the period, the higher the failure rate climbs.

Why the professionals lose

It isn't that fund managers are stupid; it's arithmetic. Before costs, active investors as a group are the market — for every one who beats the index, another must lag. After costs, the whole group starts behind, because active funds are expensive. In the UK they typically charge

**around 0.75% to 1.5% a year, versus roughly

0.06% to 0.20% for an index tracker** — three to ten times more. A 1% yearly fee sounds trivial; over decades of compounding it quietly eats a large slice of your final pot.

"But some funds do win"

True — every year some managers beat the index, and a few do it for a while. The problem is picking next decade's winner in advance. Yesterday's star fund is a poor guide to tomorrow's, and by the time a fund tops the charts you're usually buying its best years, not its next ones. Watch out too for "closet trackers": funds that hug the index quietly while charging full active fees.

The UK angle

The cheap alternative is easy to reach. A broad index tracker sits inside a Stocks & Shares ISA — £20,000 a year tax-free — for as little as 0.03% to 0.07% a year. Same market, a fraction of the cost, and you skip the guessing game of which manager stays hot.

Our take

For most people, a low-cost tracker should be the default core, and the burden of proof sits with active — a fund has to be good enough to beat the index and overcome its own fee, every year, which the data says almost none manage over a decade. The fair counter-argument: in less efficient corners — small-caps, some emerging markets — skilled managers have more room to add value, and there the extra fee can be worth it. Just make it a deliberate bet, not the default.

Sources & further reading

S&P Dow Jones Indices, SPIVA Europe Year-End 2025
Morningstar, a closer look at UK fund costs
justETF UK, low-cost index ETFs

Educational content only — not financial advice. Investments can fall as well as rise; capital at risk. Past performance is no guide to future returns. Figures checked July 2026.