A key reason that actively managed funds have lower returns than index funds with a similar level of risk is that
A) index funds require more buying and selling to generate their returns.
B) management and trading costs reduce the returns of actively managed funds.
C) index funds spend more on research and management.
D) diversiﬁcation is more important to actively managed funds.

Question

Quizplus · Accepted Answer

The management and trading costs associated with actively managed funds are typically higher than those of index funds. These costs can reduce the returns of actively managed funds and make them less profitable than index funds with similar levels of risk.

A Key Reason That Actively Managed Funds Have Lower Returns