ETFs: The Only Tool That Beats 90% of Fund Managers

A finding the financial industry despises

For over 20 years, the SPIVA studies published by S&P Global have confirmed the same result: over a 15-year horizon, approximately 90% of actively managed funds underperform their benchmark index. In Europe, in America, in Asia. The finding is universal.

This means one simple thing: by paying high management fees for a professional to select stocks on your behalf, you have a 9-in-10 chance of doing worse than an index fund that simply replicates the market.

For an entrepreneur who has neither the time nor the inclination to spend their evenings analysing balance sheets, this data is liberating. The most performant strategy is also the simplest.

What is an ETF, exactly?

An ETF (Exchange-Traded Fund) is a fund listed on a stock exchange that replicates an index. An MSCI World ETF, for example, gives you exposure to approximately 1,500 companies across 23 developed countries, in a single purchase.

You do not need to choose between Apple, LVMH, and Toyota. You own them all, proportional to their market capitalisation. If a company outperforms, its weight increases automatically. If another declines, its weight decreases.

It is maximum diversification with minimum decisions.

The three decisive advantages

Incomparably low fees

A standard global ETF charges annual management fees of 0.15% to 0.25%. An actively managed fund charges between 1.5% and 2.5% per year, often supplemented by entry commissions, performance fees, and transaction charges.

On 100,000 euros invested over 20 years at 8% gross: with 0.20% in fees (ETF), you obtain approximately 453,000 euros. With 2% in fees (active fund), you obtain approximately 321,000 euros.

The difference: 132,000 euros. In fees alone. The gross return is identical.

Fees are the only investment factor you control with certainty. Everything else — returns, volatility, timing — is uncertain. Minimising fees is therefore the most rational decision you can make.

Total transparency

An ETF publishes its composition every day. You know exactly what you hold, in what proportions, at all times. There is no black box, no opaque decision by a fund manager, no hidden style drift.

This transparency allows you to understand your true exposure. You know what percentage of your wealth is invested in the United States, in Europe, in Asia. You know your sector exposure. You can adjust with full knowledge.

Immediate liquidity

An ETF trades on the stock exchange, like a share. You can buy or sell at any time during market hours, at the displayed price. No redemption delay. No notice period. No penalty.

For an entrepreneur who must be able to mobilise funds rapidly in the event of an opportunity or an urgent need, this liquidity is a considerable advantage.

The business owner's ETF portfolio in seven steps

Step 1: Open a PEA if you have not already

The PEA (Plan d'Epargne en Actions) is the most tax-efficient equity wrapper in France. After 5 years, capital gains are fully exempt from income tax. Only social contributions of 17.2% apply. Maximum contribution: 150,000 euros. For international investors with French tax residency, it is an essential first step.

Step 2: Select a PEA-eligible global ETF

Synthetic replication ETFs allow you to invest in a global index (MSCI World, FTSE All-World) while remaining eligible within the PEA. It is the best of both worlds: global diversification and French tax advantage.

Step 3: Define a monthly DCA amount

DCA stands for Dollar Cost Averaging: investing a fixed amount each month, regardless of market conditions. This approach smooths the purchase price over time and eliminates the stress of market timing.

The amount depends on your savings capacity. 500 euros per month, 1,000 euros, 2,000 euros. What matters is regularity, not the amount.

Step 4: Automate the execution

Set up a standing order to your broker. Some platforms allow automatic monthly ETF purchases. If yours does not, set a reminder on the same day each month and place the order in two minutes.

The goal is to transform investing into a mechanical habit, not a decision.

Step 5: Fill the PEA before anything else

Your PEA must be at its contribution ceiling before you fund a personal brokerage account or life insurance. This is the absolute rule. The tax advantage of the PEA over 15 or 20 years represents tens of thousands of euros in savings.

Step 6: Complement with the holding company brokerage account

Once your PEA is full, surplus cash from your holding company can be invested in ETFs through a professional brokerage account. The same global ETFs, the same DCA logic, but with the advantage of gross compounding. Unrealised capital gains are not taxed as long as they remain unrealised.

Step 7: Do not touch it

This is the hardest step. Markets will drop. They will fall 10%, 20%, perhaps 30%. This is normal. It is the price of long-term performance.

Your job is not to react. It is to not react. Every decline is a buying opportunity for your automatic DCA. Every panic is a test of discipline. The entrepreneurs who outperform are not those who buy the best ETFs. They are those who do not sell on the bad days.

The classic objection: what if I want to beat the market?

It is a legitimate question. The answer is statistical: you have less than a 10% chance of succeeding, even if you devote time to it.

Stock-picking — selecting individual shares — is intellectually stimulating but financially dangerous for a non-professional. Concentrating on a handful of stocks increases risk without guaranteeing outperformance.

If you nonetheless wish to allocate a portion of your capital to stock-picking, apply the satellite rule: 90% of your portfolio in index ETFs (the core), 10% maximum in individual positions (the satellite). This way, your convictions have room for expression, but your wealth remains protected.

Final word

The index ETF is not a miracle product. It is a tool. But it is the tool most consistent with the philosophy of an entrepreneur who wants to compound wealth effectively, without becoming a part-time trader.

Simple. Performant. Tax-optimised when placed in the right wrapper.

Sophistication in investing does not consist of multiplying complex products. It consists of finding the simplest tool that fulfils the objective, and sticking to it with discipline.