Active vs Passive Funds: Who Wins?
SPIVA data and global research show that the majority of actively managed funds underperform index funds. What about Indonesia?
Note: This article discusses Indonesian financial products and regulations. The underlying investment principles apply globally.
Active vs Passive Funds: Who Wins?
Actively managed mutual funds employ professional investment managers who try to beat the market. Passive mutual funds (index funds) simply track an index — no analysis, no stock picking.
Which is better? Data from around the world has answered this question very clearly. For beginners, read the complete guide to starting passive investing first.
Do Active Funds Beat Passive Funds?
No. SPIVA (S&P Indices Versus Active) data consistently shows that the majority of actively managed funds globally underperform passive index funds over the long term. In the US, 92% of active funds underperform their index over a 15-year period. In Indonesia, the same pattern emerges — active funds must beat the index by 2-3% per year just to compensate for their higher fees.
While some active funds may outperform the index in certain periods, their consistency is very poor. Past performance is not a reliable predictor of future performance. Let’s first look at the fundamental differences between the two:
What’s the Difference?
| Active Mutual Fund | Index Mutual Fund (Passive) | |
|---|---|---|
| Goal | Beat the index | Match the index |
| Investment manager | Actively selects stocks | Follows index composition |
| Management fee (expense ratio) | 1.5% - 3.5% per year | 0.2% - 1% per year |
| Purchase fee | 0% - 2% | Usually 0% |
| Redemption fee | 0% - 2% | Usually 0% |
| Number in Indonesia | 800+ products | <20 products |
The fee difference may seem small. But over the long term, the impact is enormous.
Global Data: SPIVA Scorecard
S&P Dow Jones Indices publishes the SPIVA Scorecard annually — the most comprehensive research comparing active fund performance vs indices worldwide.*
Percentage of active funds that UNDERPERFORM their index (as of end 2024):†
| Country/Region | 5-Year Period | 10-Year Period | 15-Year Period |
|---|---|---|---|
| US (Large-Cap) | 79% | 87% | 92% |
| Europe | 75% | 85% | 89% |
| Japan | 65% | 72% | 81% |
| India | 65% | 70% | 78% |
| Australia | 78% | 83% | 87% |
| Asia ex-Japan | 70% | 78% | 84% |
Over a 15-year period, more than 80-90% of active funds in almost all countries underperform passive index funds.
And this isn’t because the investment managers are incompetent. It’s because of mathematics.
Why Do Active Funds Lose? Three Reasons
1. Higher fees
This is the primary and most important reason.
Example calculation:
| Active Mutual Fund | Index Mutual Fund | |
|---|---|---|
| Gross market return | 10% | 10% |
| Expense ratio | -2.5% | -0.5% |
| Buy/sell fees (amortized) | -0.5% | 0% |
| Net return | 7% | 9.5% |
A 2.5% difference per year. The impact after 20 years on a IDR 100 million investment:
| Active Fund (7%)‡ | Index Fund (9.5%)‡ | |
|---|---|---|
| After 10 years | IDR 197 million | IDR 248 million |
| After 20 years | IDR 387 million | IDR 616 million |
| After 30 years | IDR 761 million | IDR 1.53 billion |
A 2.5% annual fee difference results in IDR 769 million difference after 30 years. That’s almost 8x the initial investment — lost just to fees.
2. Zero-sum game before fees
This is William Sharpe’s (Nobel laureate) argument:
- All active investors on average get market returns (because they ARE the market)
- After deducting fees, the average active investor must underperform the market
- Passive investors get market returns minus much smaller fees
This isn’t theory — it’s simple arithmetic.
3. Winner consistency is very poor
Even though some active funds beat the index in one period, they almost never replicate this consistently.
SPIVA Persistence Scorecard data:§
- Of US active funds that were in the top quartile (top 25%) during 2019-2021:
- Only ~25% remained in the top quartile during 2022-2024
- This is the same as random probability — there is no persistent skill
Picking active funds that will win in the future is just as difficult as picking individual stocks. Past performance is not a reliable predictor.
What About Indonesia?
SPIVA also publishes data for Southeast Asian markets, though Indonesia-specific data is still limited. Based on available data:
- Active fund fees in Indonesia are among the highest in Asia — average expense ratios of 2-3.5% for equity funds
- Index fund fees in Indonesia — expense ratios of 0.2-1%
- This large fee difference means Indonesian active funds must beat the index by a very large margin just to break even
Real product comparison (as of 2025):
| Product | Type | Expense Ratio | Benchmark |
|---|---|---|---|
| BNP Paribas SRI-KEHATI | Index | ~0.5% | SRI-KEHATI |
| Bahana IDX30 | Index | ~0.4% | IDX30 |
| Schroder Dana Prestasi | Active | ~2.5% | JCI |
| Manulife Saham Andalan | Active | ~2.8% | LQ45 |
Active funds must deliver 2% higher returns than the index every year just to compensate for their fees. In practice, very few can do this consistently.
”But Indonesia Is Still an Inefficient Market”
A common argument: “The Indonesian market isn’t as efficient as the US, so active managers can still win.”
There’s some truth to this — the Indonesian market is indeed less efficient than the US. But:
- SPIVA data shows active funds also underperform in emerging markets — including India, Brazil, and Asia
- Market inefficiencies can be exploited by anyone — including other investment managers. They compete with each other, reducing each other’s advantages
- Even if some managers win, you don’t know which ones beforehand — and the cost of guessing wrong is very high
Additional Advantages of Index Funds in Indonesia
1. Taxes
Both active and passive mutual funds are tax-free for individuals in Indonesia. So tax advantages don’t differentiate between them. But since index funds have higher net returns (lower costs), the tax-free amount is also larger.
2. Transparency
You always know what’s in an index fund — the stocks in the IDX30, LQ45, or SRI-KEHATI indices are publicly disclosed. Active funds? You only know their composition from monthly reports that are already outdated.
3. Simplicity
No need to analyze investment manager track records, investment strategies, or style drift. Choose the index you want, buy it, done.
What Should You Do?
- For Indonesian equity allocation: choose index funds (Bahana IDX30, BNP Paribas SRI-KEHATI, or similar)
- Compare expense ratios before buying — choose the lowest for the same index
- Don’t be tempted by past track records of active funds — data shows these don’t persist
- Invest regularly every month — consistency matters more than product selection
SPIVA Data: Proof That Active Funds Underperform Index Funds
Platforms like Bareksa often display “best active funds” based on performance over a few months or a particular year. What they don’t mention: SPIVA Indonesia data shows that approximately 90% of Indonesian active equity funds underperform their benchmark index over the last 5 years. Choosing active funds based on past performance is like looking in the rearview mirror while driving — what matters is long-term consistency, and this is where index funds excel with lower costs and more consistent performance.
This phenomenon isn’t unique to Indonesia. Globally, the SPIVA Scorecard consistently shows the majority of active fund managers fail to beat their benchmark after fees. Survivorship bias also plays a role — poorly performing funds are often closed, so only the “survivors” appear on the list.
Summary
| Fact | Data |
|---|---|
| % of active funds underperforming index (15 years, global) | 80-92% |
| Typical expense ratio difference in Indonesia | 2-3% per year |
| Impact of 2.5% fee difference over 30 years (IDR 100 million) | IDR 769 million lost |
| Do past winners keep winning? | No — consistency equals random chance |
Active funds are not a scam. Their investment managers are professional and work hard. But the fees they charge are almost always greater than the value they add.
Choose index funds. Pay low fees. Let compound interest work for you, not for the investment manager.
Sources & References:
* SPIVA Scorecard (S&P Indices Versus Active) is periodic research from S&P Dow Jones Indices comparing active fund performance with their benchmark indices. Full reports available at spglobal.com/spdji.
† SPIVA data represents the percentage of active funds that underperform their benchmark index after fees. Figures vary by publication period and region. Data in this article refers to the 2024 SPIVA report (or nearest edition).
‡ Calculation uses compound interest: FV = PV × (1 + r)^n where r = annual net return after fees.
§ SPIVA Persistence Scorecard measures the consistency of active fund performance from one period to the next. Data shows that past performance is not a reliable predictor of future performance.
Further reading:
- SPIVA Scorecard - Global Reports
- The Arithmetic of Active Management - William F. Sharpe
- Indonesian mutual fund data: OJK (Financial Services Authority) Mutual Funds
Additional references:
- S&P Dow Jones Indices. “SPIVA® Indonesia Scorecard.” Updated periodically.
- Malkiel, B.G. A Random Walk Down Wall Street, 2023 (W.W. Norton & Company).
Disclaimer: This article is for educational purposes only, not investment advice. SPIVA data may change according to publication period. Always verify the latest data.