ETFs vs. Bank funds

These bank funds perform worse than ETFs!

How are your bank funds performing?

Yes, they’ve gone up.

But the entire stock market has gone up, so that was easy.

Why not compare them to the market? Did they do better than the market?

Or even better, let’s compare them to the simple and effective alternatives that are index ETFs!

Analysis: ETFs vs Bank Funds

With Toon Cuypers, we just finished analyzing flagship funds of 7 banks (including retail banks and private banks) in Belgium.

For each of them, we selected funds in 3 categories:

Defensive: with 25 to 35% equity allocation
Neutral/Balanced: with 50 to 60% equity allocation
Dynamic: with 75 to 90% equity allocation

And we looked at their past performance. We had full data for the past 5 years so that’s what we used.

For the Index ETF portfolio, we used the lowest asset allocation to have more conservative results (and be nice to the banks).

And here are the results:

Then we took the average for each bank to get a general overview:

Note that this EXCLUDES entry fees and transaction taxes. If we were to include them, the results would be much worse for bank funds.

So we are being very nice with the banks here…

And they still underperform massively.

The average annual return of all bank funds reviewed was 3.6%

This is 1.7% lower than the index ETF portfolio!

And this is annual returns.

Since most of this money is stuck in those funds for decades, here is what it would look like for a 20 year period with these returns.

For 1000 € invested over this period, the average bank funds takes away 830 € from your profits, and denies you of 40% of your profits!

If you still have money in bank funds…

If you still have money in bank funds, you should consider index investing.

And if you’re not sure where to start, or if you want to see what it actually looks like, then this is for you.

Are you new to index investing?

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PS: Send this article to your friends, colleagues or family. They will thank you later!

PPS: Here are the bank funds we included in this analysis.

PPPS: and of course, past performance in no guarantee of future returns. But still, banks funds in general continue to underperform a simple ETF portfolio.