Passive Versus Actively Managed Funds Essay

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.