Assembling a diversified portfolio

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1. We know that mutual funds with successful long-term records can be the consequence of survivorship bias (i.e., only the funds that do well long-term are not closed or merged by fund management companies, so it becomes a bit of a tautology) and that Gibson and Finke have demonstrated that fund companies "incubate" lots of extreme (skewed) fund strategies, only to roll out the successes with impressive near-term records. What selection criteria can we use to avoid the biases and fund complex manipulations to ensure that we're getting the building blocks we need when assembling a diversified portfolio?

2. From the beginning, ETFs were focused on indexes; now we've begun to see the emergence of "active" ETFs. Does this make sense? Why or why not? What do we gain with active ETFs? What do we lose? These questions may be particularly relevant with respect to so-called "nontransparent" ETFs (see NYT article, "A New Kind of Fund that is Stingier with Information" in this week's readings). Can you see a role in the portfolios you do or will manage for clients?

Reference no: EM133275462

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