New research attempts to do a better job at assessing whether indexing or active management performs better for long-only mutual funds. They examine each capitalization class (small cap, mid cap, large cap etc.) for both active and passive funds. The bottom line is that there appears to be some gain to active management in the mid-cap sector. I recently blogged about the advantages of small funds. This new research also confirms that active management has some advantage in periods of market underperformance though they found that active management just underperformed less in that time period.
I would be very skeptical about buying a long-only actively managed large cap fund. I don't own any currently unless you count Colonial First State's Global Resources Fund. But actually it's not a large-cap only fund. In the past I have owned Colonial First State's Geared Share Fund. It is a large cap long-only Australian stockmarket fund that uses leverage. Of course most Australian large cap stocks would be mid-caps in the US. And the real reason to use the fund is for the built in borrowing at a very low interest rate.
I get large cap exposure in the short-term using futures and ETFs. If you want to get large cap exposure in a buy and hold fashion it probably does make sense to buy an index fund. But does it make sense to buy and hold large cap stocks anyway?
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