Beware of “Closet Index Funds”

Individuals have two basic investment options: they can invest in index funds that represent the state of the market in general, or they can pay professional money managers for their expert investment opinion.

The Wall Street Journal recently identified a handful of large-cap mutual funds that are not keeping their end of the bargain to attempt to provide superior security selection. These funds charge high fees but follow a strategy that is very close to simply betting on an index. These supposedly active fund managers, in, effect, are being paid for doing close to nothing.

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