Continuing on with chapter 6 of
Common Sense on Mutual Funds, Bogle shows that In every style box (see blog of November 16, 2010), except the small cap blend category, low cost mutual funds outperform actively managed mutual funds. He goes on to then state, that in his study, the actively managed funds in each style box have higher risks than the low cost funds. Which means that from a risk/return stand point the low cost funds are much more effiicient than the actively managed mutual funds - the actively managed funds are taking on more risk and still not outperforming.
To quote from the book:
"Cost is a key determinant of the relative returns earned by funds"
"The relative risk-adjusted ratings are so dramatically in favor of the low-cost index approach as to defy even the most optimistic expectations"
This is consistent with a recent Morningstar report on the topic (see blog of August 27, 2010)
