Conviction funds – How to find truly active funds doing something different

8 min Read Published: 27 Jan 2023

Much of the mainstream investment press gets bogged down with the active fund versus passive fund debate. As you will no doubt be aware, there has been plenty of research published to show that active fund managers as a group don't tend to beat the market over the long-term. Of course that therefore means they seldom outperform passive tracker funds over the long term either.

That is because there is a tendency for many active fund managers to closely track their benchmarks and their peers from within the same sector. This herding instinct is largely driven by a fund manager's desire to preserve their job. Underperform and you might lose your job, but stick with the herd and you should hopefully survive. Outperformance is desirable but not necessary if job security is important to you. Obviously this closet tracking is a problem if you invest in such a fund as you are essentially paying over the odds for a fund that by nature of its charges, is going to underperform the market.

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