Index funds are by far the best option for the average investor. But is there ever a case for choosing an actively managed fund?
See Part VII here.
Actively Managed Fund: How To Win The Loser’s Game [PART VIII]
Here’s a round up of hedge funds’ May returns
Tyro Absolute Return Fund was down 1.5% for May. The fund's main contributors in May were Super Micro Computer, which gained 1.6%, Shyft Group, which was up 1%, and GCI Liberty, which gained 1%. Detractors in May include Recro Pharma, which fell 2.6%, index shorts and hedges, which declined 2%, and DXC Technology, which was Read More
Before moving on, let’s briefly summarize.
Mathematically, after costs, the average returns of a passive investor have to exceed the average returns of an active investor.
The market cap-weighted index reflects the consensus view of the market and therefore is the ideal starting point for a passive investor.
But the cap-weighted index isn’t perfect and, depending on how much risk they’re prepared to take, investors may want to tilt their portfolios towards other types of risk, or beta, such as small company or value stocks.
Beta, as we’ve said, is a measure of overall market risk. But what about alpha? that’s the name given to any return provided by a fund or an individual security over and above the benchmark index.
First and foremost you should be indexing. Alternatively you could tilt your portfolio towards different types of risk.
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