4. Active fund managers broadly deliver returns less than the returns of their benchmarks. Try to...
4. Active fund managers broadly deliver returns less than the returns of their benchmarks. Try to come up with several explanations for this return differential. Which explanation strikes you as the most probable?
Homework Answers
Reasons why active funds broadly deliver less returns that the benchmarks are:
- There is a huge churn in the active funds as opposed to the benchmarks which leads to huge transaction costs and taxes.
- The fund managers charge a significant fee for managing the funds.
- The stocks in an active fund depend on the manager's skill and selection criteria which may sometimes not be good. It may also be that the manager buys a stock when it is already on the higher end and the stock price decreases after the purchase. This may result in losses.
These are some of the reasons why active funds do not provide a return greater than their benchamrks to the investors.
The most probable reason according to me is the fund management fees charged by the active funds because it is a constant expense to the fund and reduce the return to the investors.
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4. Active fund managers broadly deliver returns less than the
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please try to solve these in less than 30 minutes.ı
only need answer options ı do not need explanations of
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1-risk/return
2-equal to/greater or less than
3-self contained/stand-alone
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7-is/ is not
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9-random/non random
10-decreasing/increasing
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b) What type of fee is charged: No-load, Front-end load or a
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