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Mutual Fund Education
David Dierking Jul 25, 2017
If you are wondering whether mutual funds are right for you at all, you should read about why mutual funds, in general, should be a part of your portfolio.
At a high level, there are three broad strategies that hedge funds employ outside of traditional buy-and-hold.
There are a couple of reasons why using quant strategies can be valuable. First, they remove emotion from investing decision making. Common behavioral mistakes such as following the herd, choice paralysis and confirmation bias can impact the ability of managers to make investment choices objectively. Computers can act independently of these issues. Second, they’re potentially cheaper. Computers don’t require salaries, health benefits and other costs. High expense ratios are one of the biggest factors driving assets away from actively managed funds. Anything that can lower those fees can make actively managed funds more competitive.
Fund giant BlackRock, in particular, is embracing this trend. The combination of high cost and chronic underperformance that has become a stigma with active funds has driven the iShares fund provider to make widespread changes with its lineup. The company plans on consolidating a number of its actively managed funds and transitioning as much as $30 billion in assets over to quant-focused products. Additionally, it plans on laying off at least 36 employees as part of the move while dropping expense ratios on some affected funds, such as the BlackRock Large Cap Core Fund (MBLRX). If successful, the fund industry may take notice and soon follow suit.
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