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(EMAILWIRE.COM, April 20, 2013 ) San Francisco, CA -- There is a decision to be made by mutual fund investors, as they must choose to pay to have their money actively managed by the professional or to passively invest in the market index at a low cost.
In the past, academic studies expressed that professional investors are not worth their cost due to the after-fee return being lower than that of the market index. In theory, active managers as a group will have a difficult go of outperforming the market over the long-run, based on professional investors being a large portion of the market. Once fees are netted out, they are more likely to underperform a passive index.
Still, despite the academic theory, investors have continually paid for active asset management. They seem to prefer to try and pick a winner over the concept of playing it safe and collecting slowly. As of the close of 2012, there were over $7 trillion invested in the over 23,000 actively managed mutual funds, constituting almost three times the $2.5 trillion invested in passive funds. Is it possible so many could be wrong in their concept of how to gain value?
NerdWallet recently held an investigation of the uses. Its study looked at over 24,000 mutual funds at the ETF's available to the U.S. Investors of the ten-year period that ended at the finish of 2012. Of those 24,000, just under 8,000 were in existence for over a decade.
The asset-weighted average in return for the actively managed mutual funds was 6.5% over that period, while the passively managed index produced a 7.3% average. Equity funds on the average return was 7.19% for active managers versus 7.65% for passive funds. In all, index funds outperformed actively managed funds no matter how they were measured by asset-weight averages, medians, and simple average.
There were only 1,863 of the 7,630 of the actively managed products outperformed the average return of 7.3% after asset-weight was accounted for. Only 21% outperformed the index by statistically significant amount, at that.
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