Determining whether a passively managed fund is appropriate presents a unique challenge for the fiduciary [1].
Despite the fact that some mutual funds are passively managed, fiduciaries should periodically examine them in order to determine their ongoing prudence and suitability. Monitoring and review are especially important for “structured asset class [2]” funds. Unlike indexed mutual funds, structured asset class funds do not guarantee market return [3] and can err consideralby in tracking a performance benchmark. The advisor can provide the fiduciary [4] with a statistical analysis of passively managed funds by utilizing the data analysis functions available with popular software programs such as Microsoft’s Excel. Such analysis helps both the advisor and the client determine the extent to which fund management strategies add or subtract value.
This article originally appeared in the September 1999 issue of The Journal of Investing.
Download Fiduciary Duty to Monitor and Review Passively Managed Mutual Funds [5].