“Don’t look for the needle in the haystack. Just buy the haystack.”
That famous quote from Vanguard founder John Bogle perfectly captures why even professional investors often struggle to outperform the share market.
Active fund managers typically hand-pick stocks they believe will deliver superior returns. In contrast, index fund managers—like those at Vanguard—invest across an entire market index, allowing investors to capture the full return of the market.
Trying to outperform the market is a lot like searching for needles in a haystack. Chances are, you won’t find them.
This idea is backed up by fresh data from S&P Dow Jones Indices, released in its SPIVA Australia Year-End 2024 Scorecard. SPIVA—which stands for S&P Indices Versus Active—tracks how actively managed funds perform against their benchmark indices across different time frames.
The latest report, which offers a snapshot of performance as of December 31, 2024, shows how most active funds underperformed across the board.
Most active funds have underperformed
In 2024, a majority of actively managed funds in Australia failed to beat their benchmarks.
Among active managers in the “Global Equity General” category, 85.4% underperformed the S&P World Index, which delivered a 31.6% return in Australian dollar terms. On average, these managers posted an asset-weighted return of just 24.8%. Over the past five years, that underperformance rate jumps to 90.7%.
The pattern was similar in domestic equities. About 56% of “Australian Equity General” active managers failed to surpass the S&P/ASX 200 Index’s 11.4% return.
The “Australian Equity A-REIT” category showed the worst performance, with 86.2% of funds underperforming the S&P/ASX 200 A-REIT Index, which returned 18.5%.
Even in fixed income, where active managers tend to fare better, the trend is clear. While only 29.8% of Australian bond managers underperformed in 2024 (following 26% in 2023), the long-term picture is less rosy—81.6% have lagged their benchmarks over the last 15 years.
This isn’t just an Australian story. The SPIVA U.S. 2024 Scorecard reveals that 65% of active large-cap U.S. equity funds underperformed the S&P 500 last year. In Europe, a staggering 91% of euro-denominated Global Equity active managers fell short of the S&P World Index—the worst result in SPIVA Europe history.
Index funds offer a simple, effective alternative
These results underscore a key investing truth: simplicity works. Index funds, with their low fees and broad market exposure, continue to be a compelling option—especially when active strategies so often miss the mark.
“Great investing does not have to be complex or expensive,” says Duncan Burns, Vanguard’s Chief Investment Officer, Asia-Pacific. “Too often, investors believe they need to take more risk or chase better returns with active funds. But in reality, most active investments don’t beat the market.”
Burns adds: “There’s significant opportunity for Australian investors to enhance their long-term outcomes by increasing their index exposure—whether through ETFs or unlisted index funds.”
Rick Maggi, Financial Advisor Perth (Westmount Financial) - excerpts taken from Vanguard Australia’s ‘Smart Investing’