Thursday, March 26, 2009

Active vs Passive Management...Mutual Funds

Gene Fama and Ken French have a new paper out. "Luck versus Skill in the Cross Section of Mutual Fund Alpha Estimates"

On their blog they summarize their findings....
Our new paper, Luck versus Skill in the Cross Section of Mutual Fund Alpha Estimates, takes another look at the performance of mutual funds. Bootstrap simulations produce no evidence that any managers have enough skill to cover the costs they impose on investors. If there are managers with sufficient skill to cover costs, they are hidden among the mass of managers with insufficient skill.
Yet more evidence against buying funds with active management fees. If you are investing for the long run you can basically control two things. Diversification and fees. So buy well diversified index funds.