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Who Wins ‘Passive vs. Active’ Institutional Debate? : U.S. Large Cap Growth: Part 2.
While I like to use to active funds vs. index funds in general, I am not sure if the author is correctly analyzing data. He is just looking at the top 10 or top 20 funds. He needs to look in the aggregate. For example, what about the bottom 10 or bottom 20 funds?
The reported study is flawed by design and is flawed by the reporting of its findings.
By not considering fund survivorship bias and by only including lower cost institutional shares, the study is tilting the odds towards actively managed products. By only reporting top performers, it ignores the asymmetric distribution of all active funds, especially the lower ranked losers.
An investor would expect Index funds to be near the middle of any ranking, surely not at the top performing positions. The construction of the study screening criteria reach a ridiculous extreme in the Large Cap Growth category when only a single Index fund satisfies the screening criteria.
The referenced studies have little value for MFOers. Vanguard has recently done much more comprehensive and honest research in this arena.
Best Wishes.
Edit: I have referenced the Vanguard 2014 study on earlier posts. For completeness, here it is once again:
Comments
I completely agree with your comments.
The reported study is flawed by design and is flawed by the reporting of its findings.
By not considering fund survivorship bias and by only including lower cost institutional shares, the study is tilting the odds towards actively managed products. By only reporting top performers, it ignores the asymmetric distribution of all active funds, especially the lower ranked losers.
An investor would expect Index funds to be near the middle of any ranking, surely not at the top performing positions. The construction of the study screening criteria reach a ridiculous extreme in the Large Cap Growth category when only a single Index fund satisfies the screening criteria.
The referenced studies have little value for MFOers. Vanguard has recently done much more comprehensive and honest research in this arena.
Best Wishes.
Edit: I have referenced the Vanguard 2014 study on earlier posts. For completeness, here it is once again:
https://pressroom.vanguard.com/content/nonindexed/Updated_The_Case_for_Index_Fund_Investing_4.9.2014.pdf