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Actively Managed Funds

Most funds are actively managed—indeed, that is one of the primary reasons investors choose funds, to obtain the potential management expertise of the fund manager. Many mutual fund purchasers hope that their mutual fund manager will outperform the market, and funds regularly tout their supposed investing prowess in advertisements.

Performance is at the center of much of the controversy surrounding mutual funds, as explained in this book. Too much emphasis in the popular press is devoted to this topic, and many investors mistakenly chase the most recent top-performing funds. Because the actual record is all we know for sure—how a fund did perform last year, for the last three years, and five years, and so on—investors regularly choose mutual funds on the basis of past performance, which may be (and often is) a very poor predictor of future performance.


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