Pros and Cons of Index Funds
Swept along by the popularity of mutual funds, index funds have become more popular. Introduced in the mid-1970s, index mutual funds initially appealed to corporate pension funds because of a growing acceptance of the “efficient-market” theory. The theory behind indexing is that, even if you could not outperform the market, you could at least perform in line with an appropriate index.
While active managers use a variety of techniques, including analytical research, qualitative analysis, and judgment to select stocks, an index manager simply selects the stocks held in a particular stock index in the same proportion as they are represented in the index. The top index fund managers have enhanced returns by the timely investment of cash and the use of specific trading strategies. Critics of indexing say the performance advantage of index funds is based on their low cost structure and that absent lower costs, actively managed funds show more attractive returns.
"Pros and Cons of Index Funds." FMeX. 2015.
