There has been a great deal of press coverage in recent months about the growth of index tracking funds and their close relatives, exchange traded funds. There has also been much comment on the lack of success of active managers in beating benchmarks.
Despite this, we continue to recommend active funds to complement our active asset allocation. This might seem irrational – if we believed what we read on the subject, picking active funds is akin to flogging the proverbial dead horse; a waste of time and effort. We do not believe it, however, and are prepared to put as much in writing. In this note, therefore, we consider some evidence to support our view, briefly revisit our fund selection process and bring our work on monitoring and evaluating funds to life with a brief case study. We conclude by setting out how our fund selection process fits in with our overall investment approach.
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