Equity Index Funds Have Lost Their Way

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Abstract
The author argues that equity index funds get more credit for low costs and high efficiency than they deserve. The original idea of a low–cost, low–turnover, diversified portfolio has been replaced by funds that deliver only on their pledges of low turnover and diversification. The concentration of trading around index changes causes investors to incur transaction costs far higher than the pioneers of indexing anticipated. The author concludes that index funds based on popular benchmark indexes have become a much more costly way to invest than they used to be–and than they need to be.

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