Actually, it isn’t a counter-intuitive idea. Invested money earns a return. The more the portfolio manager charges to manage the money, the less return is available to you. Managers try to suggest that their high quality management will overcome their high fees but it seldom happens. Sales loads on mutual fund A shares, by the way, were not considered in the analysis so load funds would be at a greater disadvantage.
As I stated in the column, I’ve been doing examinations like this since the early 80s with Morningstar software and the results are always the same. The higher the fees, the lower the odds of superior performance. That’s the reason you won’t find much in my column about managed funds and lots about low cost index funds. Visit my website, www.scottburns.com, and you’ll find an entire section on Couch Potato and index fund investing, ranking index investments against managed investments.
Scott
