About $4 trillion is currently invested in . domestic equity mutual funds, making them a fundamental part of the average . investor’s overall portfolio. Since about 90% of these funds are actively managed, researchers have devoted extensive efforts in studying their performance and have found that, on average, active management underperforms passive benchmarks. For example, Wermers (2000) finds that the average . domestic equity fund underperforms its overall market, size, book-to-market, and momentum benchmarks by over the 1975–1994 period. Recent articles show more optimistic evidence of active management skills among subgroups of funds. For instance, Baks et al. (2001) find that mean-variance investors who are skeptical about.
