Take a simple rule. It held SPY (the S&P 500 exchange-traded fund, or ETF) only while the price was above its average close of the last 200 trading days. From 1993 to 2026, it made 9.33% a year. Simply holding SPY made 10.91%. That test left out costs and tax.
Systematic investing follows written rules like that one. Passive investing buys an index fund and holds it. This guide adds trading costs, fund fees and tax in the UK and the US.
Systematic vs passive investing: which wins? Systematic investing follows written rules for when to buy and sell. Passive investing buys an index fund, which tracks a market index, then holds it. Tested on an S&P 500 fund from 1993 to 2026, holding made more money than a simple trend rule, while the rule had much smaller falls.
After a cost of 0.1% on each switch in or out, a rule that held SPY (the S&P 500 ETF) only above its 200-day average made 8.63% a year. Holding SPY made 10.91%.
Tax widened the gap. In a taxable UK account, the rule made 7.41% a year after tax, against 10.15% for holding. The rule made 106 taxable sales, while holding made one, at the end.
The rule's worst fall after costs was 25.0%, against 55.2% for holding. But 80 of its 105 round trips (a purchase and the sale after it) lost money before costs. Its gains came from 8 that lasted more than a year.
Systematic vs passive investing: the two approaches
Systematic investing means following written rules, tested on past prices, the same way every time. What Is Systematic Investing? covers it in full.
Passive investing means buying an index fund and holding it. An index fund holds the shares in a market index, such as the S&P 500 index of 500 large US companies. What Is an Index Fund? explains how one works, while Index Funds vs ETFs compares the two forms.
The rule comes from What Is a Moving Average?. It holds SPY after any day it closed above its 200-day average, the mean of its last 200 closes. Otherwise it holds 3-month Treasury bills, which are US government loans.
Before costs and tax, the rule made 9.33% a year from 11 November 1993 to 6 October 2026. Holding SPY made 10.91%, with dividends counted in both. Can Systematic Investing Beat the S&P 500? runs the same rule on a later period.
Trading costs and fund fees for a rules-based strategy
The rule switched in or out of SPY 210 times, or 6.4 a year. Each switch is a trade. Holding SPY trades once.
Every trade pays the bid-ask spread, the gap between the price to buy and the price to sell. State Street, its issuer, gave a 30-day median spread of 0.00% on 6 October 2026, rounded to two decimals.
Dealing fees and price moves before an order fills add to that. So this test charges 0.1% of the money on every switch, as in What Is Backtesting? That cut the rule's return from 9.33% to 8.63% a year.
Fund fees fall on both approaches. SPY's yearly fee of 0.0945% is already in its price. A fund that ran the rule for you would charge its own fee on top.
In 2025, actively managed US stock mutual funds charged 0.64% a year on average, against 0.05% for index stock mutual funds, according to the Investment Company Institute. That fee, after trading costs, cuts the rule's return to 7.94%.
UK and US Capital Gains Tax and the rule's holding periods
Each time the rule sells, it can make a taxable gain. Holding sells only once.
In the UK, an Individual Savings Account (ISA) is a tax-free wrapper. No tax is due on income or gains from investments inside it.
In a general investment account, an ordinary taxable account, Capital Gains Tax applies. For 2026/27, the first £3,000 of gains each tax year is tax-free. This is the Annual Exempt Amount.
Above it, higher-rate taxpayers pay 24%. Basic-rate taxpayers pay 18% on gains that fit inside their basic-rate income band. Gains above that pay 24%.
In a US taxable account, the holding period matters. Gains on shares held more than one year are taxed at 0%, 15% or 20% for a single (unmarried) filer in 2026, depending on income. Gains on shares held one year or less are taxed as ordinary income, at rates of up to 37%.
Source: YX Insights
Chart 1 shows the rule's 105 completed round trips, each a purchase and the sale after it. Of these, 97 ended within a year, so US tax treated their gains as income. In 76 cases, the round trip lasted 30 days or less.
SPY after costs and tax: the 200-day rule vs holding, 1993 to 2026
The test starts with £100,000 for a UK higher-rate taxpayer, or $100,000 for a US single filer with $150,000 of other taxable income. Losses are set against gains as each country's rules allow.
Tax is paid out of the portfolio. On 6 October 2026, both strategies sell everything and pay the tax due. The after-tax figures leave out the 0.64% fund fee.
Source: YX Insights
Chart 2 shows SPY's yearly return in each setting. In a UK general account, tax cut the rule's return from 8.63% to 7.41%. Holding made 10.15%. In a US taxable account, the rule made 7.55%, against 10.18% for holding.
In money terms, the UK holder's £100,000 grew to £3.02 million. After tax on the final sale, £2.40 million was left. Reinvested dividends count as part of the cost, so the taxed gain is smaller than the rise in value.
The rule ended with £1.05 million after tax. Its 106 taxable sales were one for each of its 105 round trips, plus the final sale on 6 October 2026. Holding sold once, at the end. A holder who never sold would pay no Capital Gains Tax.
SPY, 11 Nov 1993 to 6 Oct 2026 | Holding: return a year (%) | Rule: return a year (%) | Holding: worst fall (%) | Rule: worst fall (%) | Taxable sales: holding / rule |
|---|---|---|---|---|---|
No costs or tax | 10.91 | 9.33 | 55.2 | 22.1 | No tax counted |
After costs (in an ISA) | 10.91 | 8.63 | 55.2 | 25.0 | 0 / 0 |
After costs and a 0.64% fund fee | 10.91 | 7.94 | 55.2 | 26.8 | No tax counted |
UK general account, after tax | 10.15 | 7.41 | 55.2 | 32.0 | 1 / 106 |
US taxable account, after tax | 10.18 | 7.55 | 55.2 | 27.1 | 1 / 106 |
Source: YX Insights
The table adds the worst falls. After costs, the rule's worst fall was 25.0%, against 55.2% for holding. Tax bills paid during the 1999 to 2003 fall deepened it to 32.0% in the UK account. What Is a Drawdown? explains how a worst fall is measured.
Across 15 funds: the rule vs holding after costs and tax
The same test ran on the 15 US-listed funds from the moving average guide: the S&P 500, the Nasdaq-100, small companies, developed markets, nine sectors, gold and long-term Treasury bonds. Each test starts between November 1993 and September 2005.
Source: YX Insights
Chart 3 shows the median yearly return, the middle result when the 15 funds are ranked. Before costs, holding's median was 8.72%, against 6.23% for the rule. After costs, the rule's median fell to 5.35%.
After tax, the rule's median was 4.58% in the UK and 4.81% in the US. Holding's medians were 7.87% and 8.01%.
Before costs, the rule beat holding on 2 of the 15 funds: QQQ (the Nasdaq-100 ETF) and XLK (the technology sector ETF). After costs, only XLK was ahead. After tax, in either country, none was. The rule still had the smaller worst fall on 14 of the 15 funds.
The time and discipline a rule needs
This rule needs a check of the price at each close, about 252 trading days a year. It also needs a trade on the day the price crosses its average, whatever the news.
Most of the rule's round trips lose. Of its 105 round trips on SPY, 80 lost money before costs. At one point, it lost 10 in a row, from September 2000 to April 2003.
The gains came from a few long round trips. The 8 that lasted more than a year multiplied the money 13.9 times. The other 97, taken together, lost 0.4%.
The rest of the gain came from the position still open on 6 October 2026 and from interest on cash days. Following the rule means buying again after a run of losses.
What this test leaves out
Currency. The UK case uses the US fund's dollar returns, with currency moves left out.
Tax on dividends and interest. Left out for both strategies.
The 30-day rules. UK and US rules change the tax on shares bought back within 30 days of a sale.
Past tax rules. Today's rates and allowances were applied to every year since 1993.
How to compare a systematic strategy with an index fund
Compare after costs and tax, in the account you would use.
Count the sales. Each one is a trade to place and a possible tax bill.
Weigh the smaller falls. The rule's worst fall after costs was less than half of holding's.
In this test, holding the index fund beat the 200-day rule on return. Costs, fees and tax widened the gap. The rule won on smaller falls.
Learn more with YX Insights
This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.
The same approach runs through everything else we publish:
Systematic Portfolio: ready-made portfolios for Macro & Megacaps and for Commodities. We publish the holdings and every change.
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Good places to start on the website:
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Common questions about systematic vs passive investing
Is systematic investing better than index funds for long-term returns?
Not in our test of one simple rule. A rule that held SPY only above its 200-day average made 8.63% a year from 1993 to 2026 after costs. Holding SPY made 10.91%. Across 15 funds, the rule beat holding on only 1 after costs. Its strength was smaller falls.
Which wins, a systematic strategy or an S&P 500 ETF?
On return, the S&P 500 ETF won in our test. In a taxable UK account, holding SPY made 10.15% a year after tax, against 7.41% for the 200-day rule. The rule's worst fall after costs was 25.0%, against 55.2% for holding. So the answer depends on which matters more to you.
Does a trading rule pay more tax than buy and hold?
Yes, in our test it paid tax more often and sooner. The 200-day rule made 106 taxable sales on SPY from 1993 to 2026. Holding made one, at the end. In the US, 97 of the rule's 105 round trips ended within a year, so their gains were taxed as income.
Do you pay tax on trades inside an ISA?
No. GOV.UK says you do not pay tax on income or capital gains from investments in an Individual Savings Account (ISA). So a rule that trades often inside an ISA pays dealing costs but no Capital Gains Tax. In our test, that left the rule's return on SPY at 8.63% a year after costs.
DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.