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?

Solutions

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 1 year ago

Next > < Previous

Related Solutions

Discuss investment manager skill and why managers do not consistently generate positive risk adjusted returns.

Stocks that are more risky earn higher average returns. However, managers often manipulate accounting numbers to...

Stocks that are more risky earn higher average returns. However, managers often manipulate accounting numbers to smooth the volatility of their company’s earnings and try to make the company appear less risky. How can you explain this behavior?

Suppose that some data have been collected on the returns on a portfolio i and on...

Suppose that some data have been collected on the returns on a portfolio i and on the excess returns on a market index as shown in the following table. What is the OLS estimator for βi ? year Portfolio return Market return 2015 2.8 1.5 2016 3.9 4.3 2017 4.6 5.6 2018 1.6 2.1 A. 0.51 B. 0.60 C. 0.32 D. 1.23

Some managers do not want to become overly friendly with their subordinates because they are afraid...

Some managers do not want to become overly friendly with their subordinates because they are afraid that doing so will impair their objectivity in conducting performance appraisals and making decisions about pay raises and promotions. Some subordinates resent it when they see one or more of their coworkers being very friendly with the boss; they are concerned about the potential for favoritism. Their reasoning runs something like this: If two subordinates are equally qualified for a promotion and one is...

9. Mr. Richards has a new client will earn much higher returns than normal because of...

9. Mr. Richards has a new client will earn much higher returns than normal because of their risk profile. The client will role $75,000 into an account with the firm and then they will make additional monthly deposits of $2,000 per month for the next 25 years. He also wants to illustrate the returns for a bank CD at 2%, market returns at 4% and normal returns for him of 8%. To further illustrate the power of his returns, he...

Explain why redistributive policies (that involve taxing higher earners and redistributing some of these returns to...

Explain why redistributive policies (that involve taxing higher earners and redistributing some of these returns to lower earners) can give rise to an equity/efficiency trade-off.

Explain why redistributive policies (that involve taxing higher earners and redistributing some of these returns to...

Explain why redistributive policies (that involve taxing higher earners and redistributing some of these returns to lower earners) can give rise to an equity/efficiency trade-off. word count - 250 max

How can marketing managers use regression model to generate insights on consumers' behavior?

Many references states that training can be detrimental to the organization because it causes higher turn...

Many references states that training can be detrimental to the organization because it causes higher turn over, however career development reduces it. Why might training lead to turnover but career development improve retention?

Currents in dc transmissionlines can be 100 A or higher. Some people are concerned that...

Currents in dc transmission lines can be 100 A or higher. Some people are concerned that the electromagnetic fields from such lines near their homes could pose health dangers.Part AFor a line that has current $180 \mathrm{~A}$ and a height of $8.0 \mathrm{~m}$ above the ground, what magnetic field does the line produce at ground level? Express your answer in teslas.Part BWhat magnetic field does the line produce at ground level as a percent of the earth's magnetic field, which...

Subjects