Do you know how active is that “actively managed” mutual fund you’re invested in? Probably not, and yes that is typically a rhetorical question.
But in the not too distant future you should have a clearer picture for many funds. Large asset managers, including T. Rowe Price, Vanguard and BlackRock, have agreed to provide more data on how their actively run funds deviate from the indexes they’re measured against.
Most active funds charge higher management fees than passive index funds because human manager’s skills and so are paid to pick investments: which are similar but not exactly too similar to index funds.
Such “closet trackers” charge for active management without providing the benefits.
The disclosures will help investors save on fund fees. An investigation by the N.Y. attorney general’s office found that actively run funds charge 4.5 times on average what passive index funds charge. So a passively run fund masquerading as an active fund can rake in far more in fees without doing much for its investors.
So, caveat emptor.