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As discussed in class, active funds can beat the averages for a few years, but rarely...

As discussed in class, active funds can beat the averages for a few years, but rarely ever keep up in the long run with overall market averages. Provide reasons why passive funds have beaten active funds over the long run.

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Answer #1

Passive funds have beaten the active funds over the long run because of the following reasons-

A. Passive funds completely replicate the index and there is no scope of under performance from the index.

B. passive funds always work in the principle of Efficient market hypothesis and it is always providing them with an opportunity of beating the market.

C. active funds are continuously reshuffling their portfolio so that makes them highly prone for under performance in long run because they cannot hold stocks for longer period.

D. Active fund managers are always trying to outperform in the short run rather than in the longer Run.

E. The overall fees related to active fund is higher and it is leading to an underperformance also

F. Benchmark index are always managed by insider people and they have better knowledge.

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