Question
Please reply to the following post, with whether you agree or disagree with the stance taken and why. Answer must be two paragraphs long, at
Please reply to the following post, with whether you agree or disagree with the stance taken and why. Answer must be two paragraphs long, at least, and include at least one APA reference.
There are some valid reasons why actively managed mutual funds have grown at an increasing rate while their performance remains inferior to index funds. These actively managed mutual funds can be purchased at a net asset value, which means any fees imposed by management are not incorporated in the cost of the fund. According to Ross, Westerfield and Jaffe (2013) "the overwhelming evidence here is that mutual funds, on average, do not beat broad-based indexes" (p. 448). With this being said, the question remains why these mutual funds are more popular over the other indexes. Some common reasons include low transaction costs, customer services, diversification, and professional management.
One of the biggest dilemmas over actively managed mutual funds is the ignored warnings by investors concerning the reliance upon using active funds' past performance as a way to predict future returns (Stalter, 2014). Some investors prefer the actively managed mutual funds; funds in which managers select securities, rather than simply track an index, due to the ease of the investment. Interestingly controversy arises when investors choose them because when the markets become volatile human managers can rearrange a fund's holdings to give less weight to troubled companies and sectors. As an investor it is essential to have the knowledge of how your fund manager is betting particularly in the mix of longer-term and shorter-term securities. If the manager is leaning towards the long-term funds and rates surge these could suffer the most but could also benefit the most if rates start falling again. In one sense if you own nothing but index funds but trade in and out of them regularly you are actively playing the market.
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