Index vs Active Investing

Index-tracking vs. active investment

Most ETFs are index-tracking funds. This means that they aim to replicate the performance of a specific market. Index-tracking is different to active investment, where a fund manager looks to outperform the market.

Index-tracking funds tend to have lower costs than actively-managed funds as their goal is solely to match the performance of the index. Active funds charge higher costs for the possibility, but not the certainty, of outperforming their benchmark. After these fees are taken into consideration, active funds are very often unable to outperform their benchmark.

Both investment approaches have their advantages. In many cases, some form of blending the two approaches works best. We explain this further in our Using iShares to build portfolios section.