Background
Differences between passive (index) and actively managed funds:
- Active funds are ‘actively’ managed
- Managed by financial managers and investment experts
- Passive funds are not managed
- They are indexed
Rationale
- Many investors prefer index over managed funds.
- Passive funds are more profitable.
- Index funds are also associated with less risks.
- Managed funds are highly risky.
- They are also associated with a lot of costs.
Facts
- Recent statistics on 10-year trailing returns show that passive funds perform better than active funds.
- The same applies for large-cap growth investments.
- Passive funds outperform active funds.
Objectives
The following are the objectives of this presentation:
- Define active and passive (index) funds
- Compare the performance of the two funds
- Illustrate that passive funds are superior to active stock
Literature Review
- Active funds
- Passive funds
- Performance
- Returns
Theoretical Research
- Capitalism theories can be used to analyze investment in mutual funds.
- According to Adam Smith’s economic theory, the aim of capitalists is to maximize profits.
- Karl Marx’s theory states that the desire for higher profits makes capitalists value economic activities more than human actors.
Empirical Data
- Index funds reflect the average returns in markets.
- Statistics show that more than half of active funds disappear within 10 years.
- Only about 20% of active funds survive the turbulent nature of the global economy.
References
Anderson, T 2015, Index funds trounce actively managed funds: study, Web.
Is there a case for actively managed funds?, Web.
Isbitts, R 2014, ‘Index funds beat active 90% of the time’: really?, Web.
Loth, R 2016, Passive vs. active management, Web.
Marte, J 2015, Active vs. passive: how fund managers stack up to index funds, Web.
Merriman, P 2016, 10 reasons brokers don’t like index funds, Web.
Salisbury, I 2015, A new take on the indexing versus actively managed funds debate, Web.