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Index Fundamentalism Revisited

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  • Reinker, Kenneth S.
  • Tower, Edward

Abstract

Is there any justification for investing in managed mutual funds, or are managed funds for suckers, as indexing advocates argue? We answer this question by looking at a long time span of real fund returns (27 years) for one specific company (Vanguard) that is notable for its low fees on managed funds. By creating synthetic portfoliosóportfolios based on the assets of Vanguardís mutual fundsówe find that whether index funds or managed funds are the superior buy depends on the time span in question, but that managed funds almost always have a lower standard deviation of return than index funds.

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  • Reinker, Kenneth S. & Tower, Edward, 2003. "Index Fundamentalism Revisited," Working Papers 03-07, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:03-07
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    Cited by:

    1. Edward Tower & Wei Zheng, 2008. "Ranking mutual fund families: minimum expenses and maximum loads as markers for moral turpitude," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 55(4), pages 315-350, December.
    2. Premachandra, I.M. & Zhu, Joe & Watson, John & Galagedera, Don U.A., 2012. "Best-performing US mutual fund families from 1993 to 2008: Evidence from a novel two-stage DEA model for efficiency decomposition," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3302-3317.
    3. Manuel Ammann & Michael Steiner, 2009. "The Performance of Actively and Passively Managed Swiss Equity Funds," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(I), pages 1-36, March.
    4. Rodriguez, Abel & Tower, Edward, 2007. "Do Vanguard's Managed Funds Beat Its Index Funds? Looking for Prescient Stock and Style Selection Draft 1," Working Papers 07-03, Duke University, Department of Economics.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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