Copyrights to papers in the Duke Economics Working Paper Archive remain with the authors or their assignees. Archive users may download papers and produce them for their own personal use, but downloading of papers for any other activity, including reposting to other electronic bulletin boards or archives, may not be done without the written consent of the authors.

Duke Economics Working Paper #03-07

Index Fundamentalism Revisited

Forthcoming in the Journal of Portfolio Management , Summer 2004

Kenneth S. Reinker and Edward Tower

Kenneth S. Reinker is a second year law student at Harvard Law School (MA 02138).
kreinker@law.harvard.edu 617 493-9289; 678 331-8716.

Edward Tower is a professor of economics at Duke University (NC 27708)
tower@econ.duke.edu . Phone: 919 660-1818. Fax: 919 684-8974.

Abstract

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

JEL: G11

Retrieve document:

35 pages

  Help on downloading documents