A Key Reason That Actively Managed Funds Have Lower Returns

question 162

Multiple Choice

A key reason that actively managed funds have lower returns than index funds with a similar level of risk is that

• A)index funds require more buying and selling to generate their returns.
• B)management and trading costs reduce the returns of actively managed funds.
• C)index funds spend more on research and management.
• D)diversification is more important to actively managed funds.

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Definitions:

Cross-sectional Area

The area of a particular section of an object or material that is exposed when it is cut through by a plane.

Deposition

The geological process by which sediments, soil, and rocks are added to a landform or landmass, often carried by wind, water, or ice.

Cutbank

A steep cut or slope formed by lateral erosion of a stream, especially on the outside bend of a channel.

Gradient

The rate of change of a quantity (e.g., temperature, pressure, or elevation) with respect to distance in a given direction.