- The iShares US Equity Index (UK) D fund has the lowest annual charge, at 0.05%, making it one of the most cost-effective options in the IA North America sector.
- The Xtrackers MSCI USA Information Technology ETF has consistently delivered impressive returns over the past 1, 3, and 5 years, ranking among the top passive funds in its sector.
- The L&G Global 100 Index Trust has delivered notable growth of 108.28% over 5 years and 276.58% over 10 years, significantly outperforming the IA Global sector average during these periods.
- The IA North America has returned the highest sector average of 239.12% over the past 10 years.
The trend towards passive investing has accelerated, driven by its cost efficiency and the persistent challenge active funds face in consistently outperforming their benchmarks. By the close of 2023, approximately 30% of UK investor assets were allocated to passive funds, a significant milestone reflecting growing investor confidence in this strategy.
In this article, we analyse all funds within 5 major market sectors and identify the 5 top performing passive funds in each sector and assess how they fared against their top performing actively managed counterparts.
This article will focus on 5 of the most significant market sectors - Asian equities, Global equities, European equities, North American equities and UK equities, by analysing their performance over the past 1, 3, 5, and 10 years.
Best Asian Equity Passive Funds
The IA Asia Pacific Ex Japan sector offers exposure to the rapidly growing economies of Asia, excluding Japan, with a focus on markets like China, Australia, and South Korea. These countries, often categorised as emerging markets, are favoured by investors seeking high-growth opportunities, typically with higher risk tolerance.
Over the past three years, the sector has faced challenges, recording an average return of -3.68%. This performance is primarily attributed to volatility in emerging markets. Despite the overall sector performance, some funds have managed to achieve double-digit returns, showcasing the potential for strong performance within the sector.
In the shorter term, the sector has shown signs of recovery. Over the past year, the 113 funds in this sector posted an average return of 9.06%. This improvement can be attributed to technological advancements and strong manufacturing output in key economies within the region.
Despite the region's challenges in recent years, several passive funds have consistently outperformed the sector's average delivering strong returns. However, what is notable from the below table is that just 1 passive fund returned 5 year performance that ranked within the 10 top performers in the sector, with the best actively managed funds dominating the performance charts.
The top performing passive fund in the Asian sector was the iShares Pacific ex Japan Equity Index with a 5 year sector ranking 8th out of 100 funds. Over the past 5 years, it has delivered impressive returns of 46.15%, significantly above the sector average of 22.53%.
Asian Equity 10 Year Sector Comparison
Over the past 10 years the IA Asia Pacific Ex Japan sector has averaged returns of 85.58%. The below chart compares the performance of the 5 featured Asian equity funds against the sector average over the past 10 years.
4 of the 5 featured funds managed to outperform the sector average over 10 years with the HSBC Pacific Index, iShares Pacific ex Japan Equity Index and L&G Pacific Index funds each exceeding growth of 100% during the period - considerably greater than the 85% average.
Best Global Equity Passive Funds
The IA Global sector is one of the largest and most diverse sectors in the UK investment market, attracting a broad range of investors seeking exposure to international equities. It encompasses a wide array of funds that invest in companies across the globe, aiming to provide geographical diversification and access to various growth opportunities. With over 500 funds under its umbrella and combined assets under management (AUM) totalling £205.5 billion, the sector represents a significant portion of the UK investment landscape. Its size and scale reflect the growing appetite for global exposure among UK investors, particularly those seeking to capitalise on international economic trends.
Within the IA Global sector, some of the most well-known and widely held funds in the UK can be found, including the Fundsmith Equity Fund and the Fidelity Index World Fund - which is featured in the table below.
From our analysis of all Global funds we identified the 5 passive funds that performed the best over the past 5 years. The L&G global 100 Index fund has been the top passive fund in the Global sector ranking 5th in the sector for 5 year returns. However, similar to Asian equities, the majority of the top performing passive funds in the Global sector still fell below the performance of their actively managed counterparts. The 5th best passive fund in the global sector was the hugely popular Fidelity Index World fund, which despite excellent performance still ranked 61st out of 391 funds in the sector with 5 year performance.
Global Equity 10 Year Sector Comparison
**Note** the 10 year comparison chart does not include 2 of the funds featured in the table as these funds do not have 10 year history
The 10-year sector comparison further highlights the strength of the IA Global sector, with the funds in this sector averaging 10 year returns of 148.09%. Yet this was eclipsed by the Fidelity Index World fund, L&G Global 100 Index fund and the Xtrackers MSCI World Quality ETF all of which delivered returns well in excess of 200% whilst also being among the lowest priced funds in the entire sector.
Best European Equity Passive Funds
The IA Europe ex UK sector offers investors exposure to a range of companies across Europe, excluding the UK, and plays a significant role in providing geographical diversification for UK-based portfolios. With 132 funds managing a combined £65.41 billion in assets, this sector is well-established, drawing interest from those seeking opportunities in European markets. The sector encompasses a mix of both active and passive strategies, giving investors a variety of options for accessing the growth potential of European companies.
Over the past year, the IA Europe ex UK sector has delivered an average return of 14%, highlighting its resilience amid challenging market conditions. This solid performance reflects the region's recovery, supported by both fiscal stimulus and strong corporate earnings. Despite global economic uncertainties, the sector’s ability to deliver consistent returns reinforces its appeal to investors looking for long-term growth prospects outside the UK market.
However, an analysis of performance trends within the sector shows that the top-performing funds are predominantly actively managed. While passive funds offer lower-cost access to the sector, none of the best passive options have ranked in the top quartile for performance over a five-year period. This suggests that active management has been more successful in navigating the complexities of the European market, allowing managers to capitalise on specific stock selection and tactical asset allocation to drive superior returns. As a result, investors looking for stronger performance may lean towards actively managed funds within this sector.
European Equity 10 Year Sector Comparison
The IA Europe Excluding UK sector has shown strong long-term growth, with an average return of 122.04% over the past 10 years.
As illustrated in the chart, 2 of the funds featured in the 5 year performance table failed to beat the sector average over 10 years, which would suggest that high quality actively managed funds in the sector have been the more rewarding option for investors.
Best North American Equity Passive Funds
The IA North America sector provides investors with access to the vast and dynamic US market, which is home to some of the world's largest and most influential companies. With £105.3 billion in assets under management across 234 funds, this sector plays a crucial role in many UK investors' portfolios. The US market, known for its innovation and strong corporate earnings, continues to attract significant capital flows, offering a range of opportunities for both active and passive investors seeking exposure to North American equities.
Over the past year, the IA North America sector has posted an impressive average return of 19.99%, reflecting a strong rebound after the challenging market conditions in 2022. This recovery can be attributed to a resurgence in the technology sector and overall market resilience in the face of global economic pressures. The sector's performance underscores the potential for robust growth in the US market, particularly in sectors such as technology and consumer discretionary, which have driven much of the recent gains.
Despite the strong showing from the sector, passive funds have had mixed success over the long term. The number one ranked fund over five years is the Xtrackers MSCI USA Information Technology ETF, with an exceptional 5-year return of 193.99%, far surpassing the sector average of 74.75%. However, the second-best passive fund ranked only 30th over the same period, meaning that the majority of top-performing funds in the sector are actively managed. This suggests that active management has been particularly effective in navigating the US market's complexities, allowing managers to capitalise on opportunities that may not be captured by broader index-tracking strategies.
North American Equity 10 Year Sector Comparison
**Note** the 10 year comparison chart does not include 2 of the funds featured in the table as these funds do not have 10 year history
The 10-year sector comparison further underscores the strength of the IA North America sector, with funds in this category averaging 10-year returns of 239.12%. However, this was surpassed by the Fidelity Index US fund, HSBC American Index fund, and the iShares US Equity Index fund, all of which achieved returns significantly above the sector average.
Best UK Equity Passive Funds
The IA UK All Companies and IA UK Equity Income sectors are core components of the UK investment landscape, offering exposure to UK-based businesses across various industries. The IA UK All Companies sector focuses on growth opportunities within the UK, while the IA UK Equity Income sector targets companies that generate consistent dividend income, appealing to income-seeking investors. Both sectors feature a broad range of funds, providing a mix of passive and actively managed strategies, aimed at capturing growth or income from the domestic market.
Over a five-year period, analysis of performance in these sectors shows that passive funds have struggled to keep pace with their actively managed counterparts. Specifically, three of the five top-performing passive funds in these sectors failed to outperform 75% of the overall sector for five-year performance. This underperformance highlights the challenges passive funds face in these sectors, where stock selection and active management can provide an edge, especially in navigating the complexities of the UK market.
UK Equity 10 Year Sector Comparison
While the IA UK All Companies sector delivered an average 10-year return of 69.50%, one of the lowest among major sectors discussed above, all but one of the passive funds featured have managed to outperform this average.
The Value of Understanding Fund Performance
We define a top-performing fund as one that consistently ranks in the top 25% of its sector, outperforming 75% of its peers. However, many portfolios contain funds that fall short of this standard, often ranking in the bottom 25%.
With over 100 fund management brands and thousands of funds available in the UK, it can be challenging for investors to identify the best options. New funds are also regularly introduced, adding to the complexity of fund selection.
Consistency is a key indicator of success and is central to our portfolio management approach. We believe consistency displayed by investment funds that maintain a high sector ranking over continuous periods reflects efficiency and expertise from the fund manager through their ability to deliver competitive returns for their clients over both the short and long term.
While short-term political and economic fluctuations can make it difficult for even the best fund managers to consistently outperform their peers, analysing performance over 1, 3, and 5-year periods can highlight those who excel in particular markets.
Funds that consistently rank well in their sector indicate strong management expertise, whereas those that consistently rank poorly suggest an inability to deliver competitive returns for investors.
Optimise Your Investments With Yodelar
To optimise your investments, it's important to take a disciplined and pragmatic approach. Investing can be stressful, as market values often rise and fall. However, those investors who maintain a long-term strategy and avoid emotional decision-making are more likely to achieve their financial goals.
Yodelar has spent years analysing the performance and quality of portfolios for thousands of UK investors. Through extensive research, we have discovered that over 90% of investors hold portfolios with inefficiencies, resulting in missed growth opportunities. While any investment advice can help, truly exceptional advisors dig deeper. They meticulously research fund and manager performance, which allows them to identify the best investment options and build optimised portfolios.
At Yodelar, our approach is based on years of data-driven research. We review over 100 fund managers and evaluate tens of thousands of funds and 30,000 model portfolios. Our research has revealed that only a small group of funds and managers consistently outperform. We use these insights to build structured portfolios with top performing funds across different asset classes, ensuring our clients receive the best possible returns.
As an FCA-regulated firm, Yodelar combines independent advice with advanced analytics to help investors maximise their portfolio growth.
To learn how Yodelar can help you optimise your investments and increase returns, book a no-obligation call with one of our advisors today.
