5 Questions Worth Asking Your Passive Fund

With more money flowing into passive funds each year, investors need to understand what makes some passive funds better than others.

Adam Zoll 02.07.2015
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Passive funds are not all the same, even those that track the same index. While differences among passive funds may not be as stark as those among actively managed funds, passive-fund investors still need to understand what makes some passive funds better than others. And with more money flowing into passive funds each year these distinctions apply to more investors than ever before.

Whether your portfolio is made up entirely of passive funds or just a proportion, the following questions can help you determine whether you’ve chosen wisely.

Question 1: Is there a Cheaper Option?
Among the most compelling reasons for choosing passive funds over actively managed funds is that they tend to be cheaper – much cheaper. You can pick up an ETF in the UK investing in the FTSE 100 for as little as 0.07% a year or an ETF in Hong Kong tracking the Hang Seng Index for as little as 0.10%. Although you shouldn’t choose a passive fund based on price alone, it is one of the most important factors. And with passive-fund providers engaged in a long-term price war over who can offer the lowest expense ratios, these are great times to be a passive-fund investor.

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Adam Zoll  Adam Zoll is an assistant site editor with Morningstar.com

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