PT  - JOURNAL ARTICLE
AU  - Atanu Saha
AU  - Heather Roberts
TI  - Are Actively Managed Mutual Funds Per Se Imprudent Choices for 401(k) Plans?
AID  - 10.3905/jor.2019.1.054
DP  - 2019 Jul 31
TA  - The Journal of Retirement
PG  - 58--77
VI  - 7
IP  - 1
4099  - https://pm-research.com/content/7/1/58.short
4100  - https://pm-research.com/content/7/1/58.full
AB  - Many corporations and financial institutions have recently faced lawsuits in which plaintiffs have alleged harm to 401(k) plan participants by the inclusion of high-fee actively managed mutual funds in plan offerings, instead of low-cost index funds. The goal of our study is to compare the performance of actively managed and passive index funds. Using a large dataset of more than 11,000 mutual funds, we find that, on average, actively managed funds do have higher fees than their index fund counterparts. However, a portfolio of active funds chosen based on certain key characteristics, such as low expense ratio, low turnover, high Sharpe ratio etc., have better net-of-fees returns than passive index funds in the categories of US equity, international equity, fixed income, and mixed assets. The findings in our study imply that inclusion of a higher-fee active fund in a 401(k) plan does not necessarily imply an inferior or imprudent choice.TOPICS: Retirement, mutual fund performance, performance measurement