Does Size Matter?

The only reason to invest in actively managed funds is to earn alpha: returns greater than those of the market. As active funds accumulate a history of such returns, they naturally attract more and more money. But for various reasons, it turns out that as an active fund grows, it becomes harder and harder to earn alpha. In this quarter’s main article, we explore why that is so, and whether there is such a thing as optimal size for actively managed funds.

The article is adapted from a much longer paper addressing many issues of investment prudence for fiduciaries, written by our own Patrick Collins, and available here.

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