Bloomsbury Financial Planning

Like most economists, he is intellectually opposed to the premise on which much of Britain’s financial-services industry is based — that it is worth paying higher fees to active fund managers to beat the market.

In our Fame & Fortune interview this week he says: “I don’t believe in picking individual stocks or assets. As for actively managed funds, I never saw the point of paying someone large fees for sub-standard returns.”

The figures bear him out: trackers have beaten active funds over one, three and five years, according to Morningstar, the data firm.

The latter only start to show their mettle over 10 years and even then the difference is hardly startling. Over the past five years, the average tracker fund has returned nearly 15% after all charges, while active funds have gained just 12%.

Over 10 years, however, the average tracker is down 6%, while active funds have scraped a gain of 1.3%. So fund managers have narrowly saved us from the “lost decade” but they’ve hardly covered themselves in glory.

The tracker camp received another boost last week with the launch in Britain of US index firm Vanguard. American investors have long enjoyed lower costs than us but Vanguard has pledged to change matters.

It will charge only 0.15% a year on its UK equity index fund compared with total costs of 0.27% for the current cheapest — Fidelity’s Moneybuilder UK index fund — and 1% for the largest, Virgin. The difference may not sound like much but it can add up.

If you put a lump sum of £10,000 into a tracker and it grew by 5% a year, you would have £16,058 after 10 years with the Vanguard fund, but only £15,875 with Fidelity — £183 less. With Virgin, you would end up with a fund of only £14,802 — £1,256 less. And if you chose an active fund with a typical 1.5% charge, you would get only £14,079 — making you nearly £2,000 worse off, according to Bloomsbury Financial Planning.

On costs alone, then, trackers are a no-brainer. However, proponents of active funds argue that it’s about much more than costs, pointing to the small band of fund managers who really do deserve their fees.

Fidelity Special Situations is the top fund over the past 10 years with a return of nearly 160%, according to Trustnet.co.uk. However, Anthony Bolton, the manager who delivered most of the outperformance, stepped down at the end of 2007. His successor, Sanjeev Shah, seems to be doing a creditable job but he wouldn’t be most advisers’ first choice. Next in the league table is GAM UK Diversified, managed by Andrew Green. It is up 138% but takes mostly institutional money.

Schroder Recovery, up 100% over 10 years, has changed managers several times, while Solus UK Special Situations makes the top five largely because it used to be managed by Nigel Thomas, now at Axa Framlington.

Ben Yearsley of Hargreaves Lansdown, the financial adviser, would recommend only one of the top-five funds over 10 years — Black Rock UK Special Situations.

Economists argue that, faced with such a bewildering choice, the typical investor has no chance of picking an active manager who will beat the market over the long term, so why not stick with a tracker?

If you have only a passing interest in investment, I’d agree. If you’re prepared to do a little more legwork, however, you can improve your chances of beating the market.

Fund supermarkets such as Fidelity Funds Network and discount brokers such as Bestinvest and Hargreaves rebate the commission built into fund management fees. That reduces initial charges from about 5% to as little as 2%, or even nothing in some cases. Some brokers will even shave a third off the typical 1.5% annual charge.

The internet has also made it easier for ordinary investors to analyse funds. Citywire.co.uk ranks managers rather than funds, getting round the problem that most managers move jobs every three or four years but even then, though, you are investing with the benefit of hindsight.

It’s hard to argue with Roubini that most of us would be better off with trackers.