Millions of people around the world invest in actively managed mutual
funds, believing fund managers can find enough hot stocks to supercharge
results. But others scoff at the idea, pointing to studies showing the
average managed fund trails its benchmark index over time.
While some managers do exceptionally well year after year, it is not clear
whether the reason is skill or luck. With enough people flipping coins,
some will flip a string of heads, the index advocates say. They prefer
passive management, in which a fund simply buys the stocks in its
benchmark index and holds them for the long term, minimizing the costs
and fees that chew into returns at managed funds.