Investors have a new tool at their disposal when it comes to determining whether they’re getting what they pay for when they invest in actively managed funds. In April, following an investigation by the New York attorney general’s office, 13 mutual fund firms, including T. Rowe Price and Vanguard, agreed to disclose to individual investors a previously unpublished measure called active share.
Active share measures the extent to which a mutual fund’s holdings deviate from a market index. An index fund would have 0% active share because its holdings completely align with those of the benchmark. In theory, the measure, when combined with expenses, allows the investor to determine how much active management he or she is paying for. If an actively managed fund holds 90% of an index, the investor may be better off with a low-cost index fund.
It’s important to remember, however, that active share has no correlation with performance, says Jeff Ptak, global head of manager research at Morningstar. Rather, before you buy a fund, try to determine whether active management is worth paying for, he says. “Investors can determine whether a fund veers from its benchmark or stays at home. If it’s the latter, then investors should begin to research how that manager adds value to the fund.”
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
-
Take Charge of Retirement Spending With This Simple StrategyTo make sure you're in control of retirement spending, rather than the other way around, allocate funds to just three purposes: income, protection and legacy.
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
Best Banks for High-Net-Worth Clients 2024wealth management These banks welcome customers who keep high balances in deposit and investment accounts, showering them with fee breaks and access to financial-planning services.
-
Stock Market Holidays in 2024 and 2025: NYSE, NASDAQ and Wall Street HolidaysMarkets When are the stock market holidays? Here, we look at which days the NYSE, Nasdaq and bond markets are off in 2024 and 2025.
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?Markets When does the market open? While the stock market does have regular hours, trading doesn't necessarily stop when the major exchanges close.
-
Bogleheads Stay the CourseBears and market volatility don’t scare these die-hard Vanguard investors.
-
The Current I-Bond Rate Until May Is Mildly Attractive. Here's Why.Investing for Income The current I-bond rate is active until November 2024 and presents an attractive value, if not as attractive as in the recent past.
-
What Are I-Bonds? Inflation Made Them Popular. What Now?savings bonds Inflation has made Series I savings bonds, known as I-bonds, enormously popular with risk-averse investors. So how do they work?
-
This New Sustainable ETF’s Pitch? Give Back Profits.investing Newday’s ETF partners with UNICEF and other groups.
-
As the Market Falls, New Retirees Need a Planretirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
