Thursday, August 6, 2015
Subject: Closet Indexing:Your Mutual Fund May Be Too Lazy
It is well documented that on average active mutual fund tends to underperform the market. However, there is now a further issue with mutual funds according to the recent of Antti Petajisto formerly of Yale University and now at Blackrock.The problem is this. The point of owning a mutual fund is paying a team of analysts to pick stocks on your behalf, but according to this research, a significant group of mutual funds are no more than “closet indexers”, closer to following the market than trying to beat it. This matters because not only are you paying a high fee, you aren’t getting what you might expect. It’s a little like paying a premium for Gucci loafers and then discovering that the shoes you received are remarkably similar to a pair from Walmart.