Compensated Awareness Post View
Disclaimer
Mutual Funds Vs. ETFs: Small Cap Stocks
John C. Bogle, the founder of investment management firm Vanguard, has estimated that the investment industry collectively shaves around 3% from stock returns each year. This stems primarily from the fees it charges for managing assets for individuals and institutions. Bogle has also openly questioned the value of actively managed funds over index funds. Exchange traded funds (ETFs) are another low-cost way to invest primarily in passive, indexed strategies. Not surprisingly, Vanguard was founded on low-cost index funds and has moved into ETFs, as have most other well-known firms in the industry.
Mutual Funds
The industry also likes to divide up stocks by market capitalization. Generally, active managers of large capitalization stocks have the worst track records when compared to their underlying index. An industry report from late 2011 estimated that two-thirds of large-cap mutual funds underperformed their index over the past three years. The best category was in the small-cap space, but 63% of active managers still underperformed. The only space where managers steadily beat their bogey was in the small cap international space of the market. The small-cap value category was also a relatively strong category.
Based on the above data, for the most part, investors would be well served to invest in index funds that simply look to match market returns. Standard small-cap indexes include the Russell 2000 and S
