Jared Kizer’s analysis indicates the return to stock-picking skills is not enough to offset the additional transactions costs of a managed portfolio. Thus the superior performance of Vanguard’s managed portfolio was due entirely to its tendency to overweight small stocks and value stocks relative to the index portfolio during a period when stocks with these two characteristics outperformed the market. So, it is style-picking skill rather than stock picking skill that leads to the superiority of the managed portfolio in this particular instance. Similarly, style-picking skill explains the lower risk for the managed portfolio.
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Paper provided by Duke University, Department of Economics in its series Working Papers with number
04-07.
Length: available upon request Date of creation: 2004 Date of revision: Handle: RePEc:duk:dukeec:804-07
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