Index Fundamentalism Revisited

Index Fundamentalism Revisited
Kenneth S. Reinker and Edward Tower
May 3, 2004
the Journal of Portfolio Management, Summer 2004

Abstract:
Is there any justification for investing in managed mutual funds, or are managed funds forsuckers, as indexing advocates argue? We answer this question by looking at a long timespan of real fund returns (27 years) for one specific company (Vanguard) that is notablefor its low fees on managed funds. By creating synthetic portfolios—portfolios based onthe assets of Vanguard’s mutual funds—we find that whether index funds or managedfunds are the superior buy depends on the time span in question, but that managed fundsalmost always have a lower standard deviation of return than index funds.