How can I tell if a fund is passive or actively managed?

Generally, you will be able to tell by the name. A passive fund will usually have the word ‘index’ or ‘tracker’ in its name. You can also tell by the charges (sometimes called the ‘OCF’ which means Ongoing Charges Figure). If it’s less than around 0.25% a year, it will be passive. If it’s around 0.5% or more, it will usually be active.

You can also tell by reading a fund factsheet. Funds have to describe their objective and this is where a passive fund will usually say something like: “This fund aims to track the performance of the MSCI World/FTSE 100” or whatever the index is. Active funds are a bit more woolly about what they are trying to do, as by definition they cannot pin it to anything as concrete as an index. They will typically say something about aiming for capital growth over the medium-term, yadda yadda, as their lawyers don’t want them to put any numbers down in writing!

If you want to get into the weeds, you could look for a metric known as Active Share. This measures how ‘different’ a fund is from its benchmark. If the Active Share is 0%, it is the same as the benchmark. So a pretty useless active fund. If it is over 80%, then this is typically seen as good – they are not just buying all the big popular people and hedging their bets. They are doing what you arguably want an active manager to do – truffling out the good ones and not buying the same as everyone else!

Fundsmith Equity, for example, (because their manager Terry Smith makes a big deal of this) has an Active Share of 89%. This doesn’t mean it’s good or bad in isolation, but it does mean they are holding fewer shares and taking bigger bets – and that’s what you are paying for.