Mutual Funds

Mutual Fund Landscape

Last week, I took a look at how the growth of index funds has led to more scrutiny of passive investments and their impacts on the market. This week, we’ll look at more evidence of the futility of high cost active management as compiled in DFA’s recently updated annual Mutual Fund Landscape report. The analysis shows that a majority of fund managers evaluated failed to deliver benchmark-beating returns after costs.

Index Fund Attention Abundance

I attended a meeting in the early/mid 2000’s where Abigail Johnson, now the president and chief executive officer at Fidelity Investments, was the featured speaker. She tried to make the case that if everyone bought index mutual funds, that security prices would never change. In other words, she claimed that if index funds become too popular and investors “blindly” bought an index’s underlying holdings, that sufficient price discovery may not happen in the market.

So was Ms. Johnson right? Should the rise of index funds be a cause of concern for investors?

How to Choose a Mutual Fund

As someone who advises people how to manage their money, I am asked frequently how I choose the investments that I recommend or buy on behalf of clients. There are a few ways to go about answering such a question, but the simple answer is that I’m cheap.

You may have already figured that out if you have read any of my DIY articles recently. One cause of my parsimony is certainly due to a father that passed to along a frugal streak that earned him a nickname of Squeaky Weeks. It was said that he was so tight, that he squeaked when he walked.

But while the thrifty trait very well may have been passed through DNA, the behavior has been nurtured by observations as well. Perhaps the most compelling research has been Dimensional Funds annual Mutual Fund Landscape, which once again reveals the power of penny pinching.