Don’t Give Up on Actively Managed Mutual Funds

There is little difference in prospective returns between an index fund and a low-cost, low-turnover actively managed fund.

Index funds, of both the mutual and exchange-traded variety, are hot—and that’s a good reason for a contrarian like me to cast a skeptical eye on them. From the start of 2007 through February of this year (the latest figures reported by the Investment Company Institute), domestic stock index mutual funds and ETFs received $1.4 trillion in net new cash; at the same time, actively managed funds suffered net outflows of $670 billion. In other words, investors have been moving in droves from funds that are managed by human beings to those that are run by computers and designed to mimic a particular market or sector.

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James K. Glassman
Contributing Columnist, Kiplinger's Personal Finance
James K. Glassman is a visiting fellow at the American Enterprise Institute. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence.