Consequently, more investors are considering inexpensive, index-based funds as a better way to gain market exposure. [Vanguard Highlights Fund, ETF Fees in U.K. Market]
Moreover, the Pensions Institute has found an inverse relationship between actively managed funds and performance. Every 1% increase in assets under management can translate to a 0.09% drop in alpha per year.
“Since the most likely explanation for the negative relationship between fund size and performance is the negative market impact effect from large funds attempting to trade in size, this suggests that funds should split themselves up when they get to a certain size in order to improve the return to investors,” Professor Blake added.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.