Actively managed versus passive mutual funds: A race of two portfolios

Atanu Saha () and Alex Rinaudo ()
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Atanu Saha: Data Science Partners, Postal: 477 Madison Avenue, 6th Floor, New York, NY 10022;, , 1025 Westchester Avenue, Suite 315, White Plains, NY 10604, http://datasp.com
Alex Rinaudo: Data Science Partners, Postal: 477 Madison Avenue, 6th Floor, New York, NY 10022;, , 1025 Westchester Avenue, Suite 315, White Plains, NY 10604, http://datasp.com

Journal of Financial Transformation, 2017, vol. 46, 193-206

Abstract: This paper demonstrates that the average investor would be better off by following a readily implementable strategy of investing in a portfolio of the five largest active funds in U.S. equity, fixed income, and international equity asset categories than investing in a corresponding portfolio of passive index funds. The active-fund-portfolio outperforms not only in terms of average returns, but also in risk-adjusted returns, providing far greater downside risk protection than the passive fund portfolio. This paper has important implications for investment advisors because its findings question the “wisdom” of index investing, which has been receiving considerable attention in the financial press in recent years.

Keywords: Active vs Passive Management; Index Funds; Retirement Portfolios; Mutual Funds; Horse Race; Monte Carlo (search for similar items in EconPapers)
JEL-codes: G00 G11 G23 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1599

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