Exchange traded fund spruikers and index investing brochures tell us that actively managed share funds, on average, fail to beat the market. But do you know which large cap Australian share fund has failed to beat the benchmark S&P/ASX 200 Index every year – by 0.4 per cent – since it was launched?

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One of the first myths of index investing is that an index fund allows you to "track the market". Photo: Dean Osland Credit:Dean Osland DWO

The fund I refer to is the SPDR S&P/ASX 200 Fund (ASX Code: STW), an ETF that seeks to passively track the ASX 200 index. I don't mean to single this fund out for criticism (in fact, I own units in it) but simply to highlight one of the first myths of index investing – that an index fund allows you to "track the market".

ETFs (and other index funds) are low-cost, but they're not zero-cost; fund returns will always lag the market. As index investing proponents are fond of saying, "these costs can add up".