2 Pages Posted: 18 Sep 2012 Last revised: 11 Aug 2013
Date Written: September 17, 2012
Numerous studies show that most active managers fail to deliver alpha over time, net of fees; yet investors continue to pay high fees for active management. This article asks why investors persist in such seemingly irrational behavior. As long as active managers can keep on charging high fees, they will do so. Investment managers are fond of telling clients that “hope is not a strategy”; ironically, however, selling hope has turned out to be a fantastic strategy for investment managers. It may benefit investors to think twice about how much they want to pay for hope.
Keywords: Active Management, Hedge Funds, Index Funds, Irrational Investor Behavior, Mutual Funds, Pension Fund
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