Comments on: Passive vs Active Funds Performance Comparison

By: MossySF

MossySF — Sun, 27 Jan 2008 18:26:05 +0000

One factor for your comparison is missing — tax efficiency. You have the dividend yield part of the equation there but missing is the capital gains distribution number. For example, I hold DODGX also (luckily in my 401K). The 1.5% yield is not too far off from the comparison index but the 2007 capital gains distribution was a whopping 12%! So for somebody paying 15% LTCG + 9.3% CA tax, holding this in a taxable account effectively reduces 2007 returns by 3.3%. You do reclaim some of that by now having a higher cost basis but over the long run, you’d much rather have the deferred taxes over yearly tax drag.

By: Sun

Sun — Thu, 24 Jan 2008 03:26:47 +0000

Jeremy: That’s a good point. I used return data from Morningstar which already took into consideration the fees and reinvested dividends. So only the total returns matter in the comparison. I will update the post accordingly

By: Cliff

Cliff — Wed, 23 Jan 2008 05:39:39 +0000

The trick is finding the right fund.

By: Jeremy

Jeremy — Tue, 22 Jan 2008 16:01:16 +0000

To be honest, when comparing apples to apples, I pay little attention to expense ratios. The returns that you see and that are reported are always net of fees anyway. So even if the fee is double compared to another fund, as long as the end result is a better return, that’s what matters to your bottom line.

A fund that returned 10% with a 1.0% ER compared to a fund that earned 10% with a 0.5% ER doesn’t matter, you still realized a 10% gain in the end.

But anyway, that is an interesting update, and there is certainly no reason to abandon active funds as long as they are performing in line with, or outperforming other similar investments.