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Ben Inker, director of asset allocation at Grantham, Mayo, Van Otterloo, institutional money managers based in Boston, said most actively managed fund portfolios were helped considerably last year by holding stocks of companies that, on average, had lower market capitalizations.
Citing behavioral finance literature, Ayres said the fact that most actively managed funds do worse than the market yet fund managers' profits have increased demonstrates the industry isn't governed by competitive forces.
We probably have the most actively managed fund out of any fund on the Street.
Those benefits, he said, include low costs, relatively predictable performance, broad diversification, tax efficiency and better long-term performance than most actively managed funds.
Yet because of the fees, one percentage point is the minimum level of outperformance required for most actively managed funds to even match a passive fund.
That's higher than most of the biggest index funds and exchange-traded funds but far lower than most actively managed mutual funds.
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Still, the most successful actively managed funds were those that bought selected small or microcap issues, the smallest of the small.
Most of these are actively managed funds where managers attempt to outperform a benchmark by selling winners to lock in gains.
Most European forests are actively managed and there is great diversity in terms of management objectives, forest types and species (Figure 1).
Bogle estimates that taxes and transaction costs skim 4.5% annually out of returns for most U.S. investors in actively managed funds, and 1.5% even for investors in an index fund.
Exchange-traded funds (ETFs) are similar, but while most mutual funds are actively managed, ETFs are usually designed to simply mirror an index.
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