Some portfolio managers claim that they charge higher MER because they can generate higher returns for...

Some portfolio managers claim that they charge higher MER because they can generate higher returns for investors. Do you agree with this statement? What other things might generate higher returns for investors?

Expert Solution

I do not agree with this statement.

The effectiveness of active portfolio management has been decreasing over the years. Passive indexing has been proven to earn higher returns in large-cap funds and widely followed indices. Thus, paying higher MERs to portfolio managers is not justified for large-cap stocks. However, it may be justified in certain types of funds such as small-cap funds.

ETFs that passively track indices can generate higher net returns for investors. Further, they have low expense ratios, which further increases the net returns for investors.

jeff jeffy answered 2 years ago

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Some portfolio managers claim that they charge higher MER because they can generate higher returns for...

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