The index funds and ETFs that active funds struggle to beat

Some stock markets prove to be a tough nut for active managers to crack.

The S&P 500 index, for example, is notoriously difficult for fund managers to consistently beat, given that it is the most widely researched and followed index.

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By the same token, active fund managers who invest in small companies tend to have a greater percentage of outperformers. Smaller stocks tend to be more volatile and less well researched than large companies, which gives active managers a better chance of beating a benchmark that simply owns stocks according to their size.

Below, we name passive strategies that have caught the eye by outperforming many fund managers over the past five years.  

L&G Global 100 Index Trust

Over multiple time periods – one, three and five years – L&G Global 100 Index Trust has produced top-quartile performance in the Investment Association’s (IA) global fund sector, according to FE Fundinfo. As at 12 May 2026, the fund’s five-year returns show a gain of 128.6% versus 50.8% for the global sector average.

The key reason for the outperformance is the make-up of the S&P 100 index that the L&G Global 100 Index Trust tracks.

The index holds multinational blue-chip companies of major importance in global equity markets. Companies included in the underlying index are screened for global exposure, sector representation, liquidity and size. Stocks with relatively larger sizes and higher liquidity are preferred.

In common with most indices, the S&P 100 is market-cap weighted, ranking companies by their size and share price success.  

The market cap of a company is the total number of shares in existence multiplied by the price of those shares. If a company’s share price goes up relative to other members of the index, it will represent a higher percentage of the index.

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The end result for L&G Global 100 Index Trust is that this index has significant weightings in US technology behemoths that have delivered exceptional performance for most of the past decade.

As at the end of March, L&G Global 100 Index Trust had around 40% of its assets in four US tech stocks: NVIDIA Corp, Apple Inc, Microsoft Corp and Amazon.com Inc. The respective weightings are: 12%, 10.6%, 7.9% and 5.9%.

Investors need to question whether the outperformance of Big Tech can continue, as well as if they are comfortable with those stock weightings.  

Other global trackers topping the charts  

Over the past five years or so the performance of global and US stock markets has been heavily influenced by a small number of very large stocks – primarily the US tech giants.

This has made the period a challenging environment for active fund managers – particularly those who hold less exposure than the index in these companies, the likes of Amazon, Apple, Alphabet Inc Class A and Microsoft.

Global index funds and exchange-traded funds (ETFs) have benefited from this trend, with five-year returns of just under 85% for theiShares Core MSCI World ETF GBP H Dist, Xtrackers MSCI World Value ETF 1C GBP, Fidelity Index World, and Invesco MSCI World ETF GBP. This is comfortably ahead of the IA Global sector average return of 50.8%.

Low-cost exposure to the US market pays off

In the US, there’s been similar levels of outperformance for passive strategies that track the ups and downs of the S&P 500 index. Over five years, the iShares Core S&P 500 ETF GBPH Dist and Vanguard S&P 500 UCITS ETF GBP have both returned around 100% versus 72.2% for the IA North America sector.

Over other time periods (three months, six months, one year and three years), the duo have outpaced the sector average. Both charge just 0.07% a year.

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As you would expect, the same stocks are held, with the top 10 biggest positions being Nvidia, Apple, Microsoft, Amazon, Alphabet (two share classes held), Broadcom Inc, Meta Platforms Inc Class A, Tesla Inc and Berkshire Hathaway Inc Class B.

Vanguard FTSE UK Equity Income Index

Over one, three and five years Vanguard FTSE UK Equity Income Index, has had the upper hand over the IA UK equity income sector average, up 31.6%, 64% and 92.4% against 15.2%, 35.7% and 47.1%.

The index it follows – the FTSE UK Equity Income index – consists of shares “that are expected to pay dividends that generally are higher than average”.

Therefore, its performance and income generation is heavily influenced by the biggest FTSE 100-listed dividend stocks. Its top 10 holdings account for around half the portfolio, while financials account for a quarter of assets. In total, 110 stocks are held, and the top three positions currently are BP, Shell and GSK.   

Vanguard LifeStrategy range

Last, but by no means least, the Vanguard LifeStrategy fund range has consistently outperformed most actively managed multi-asset funds since it launched over a decade ago.

Vanguard’s ready-made portfolios hold a collection of its own index funds and ETFs. Each of the five LifeStrategy funds holds a different proportion of shares, ranging from 20% to 100%, with the remainder in bonds. Three of the funds; the 20% Equity, 60% Equity and 80% Equity versions form part of interactive investor’s Quick-start Funds range that offers a simple starting point for investors.

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In 2022, the five funds in the range didn’t perform in line with their risk level, as the 20% version produced the biggest losses, followed by the 40%, 60%, 80% and 100% options. This was due to sharp interest rate rises, which caused bond prices to fall, meaning the LifeStrategy funds with greater exposure to bonds saw their performances suffer more.

Over five years, three of the five funds in the range have outperformed their most relevant IA fund sector.

Source: FE Analytics. Data to 12 May 2026. Past performance is not a guide to future performance.

The low costs, with each fund having an ongoing charges figure (OCF) of only 0.2%, make it challenging for actively managed multi-asset funds to beat them. A typical OCF for an actively managed multi-asset fund is around 1%, while multi-manager funds, which invest in other funds, tend to be even more expensive, typically around 1.2% to 1.5%.

Earlier this year, Vanguard launched a LifeStrategy Global funds range. In this article, my colleague Nina Kelly looked under the bonnet of the new funds and also highlighted other options.