Kraken Capital Watch -A Collection of Thoughts and Perspectives on World Markets, Economics, Academia, Philosopy and other Associated Random Topics.

In Defense of Actively Managed Mutual Funds

Actively managed mutual funds have experienced a steady decline in popularity.  There is a large and growing crowd of finance professionals who confidently claim that these funds are better at enriching the fund companies than they are at benefitting the investor.  They charge too high of fees, and do not provide sufficient investment performance in return.  It is said that investors are better off putting their money in a low cost index fund and calling it a day.

A recent article I came across on Twitter was yet another example of this growing chorus.  The article, titled “Uncle Sam Loves Actively Managed Mutual Funds” by Ben Carlson, from the blog A Wealth of Common Sense, uses data from Morningstar’s Jeffery Ptak to make this point.  While it does not come out and explicitly state, its conclusion is that actively managed mutual funds are a terrible choice for investors, and a complete disaster if used in taxable accounts.  Ben’s article can be found here.  The chart below is the lead graphic and paints an ugly picture for active management.