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Explain why a passively managed fund guarantees the average return of the individual securities in that fund, but it cannot ever outperform the return of the index it tracks. What is one advantage and one disadvantage of this strategy?

Sagot :

Parrain

The reason a passively managed fund would guarantee the average return on individual securities is that the fund follows the index completely with little to no deviation.

What is a passively managed fund?

This is a fund that does not have an investment team behind it that try to beat the market by predicting returns. Instead this fund follows the index as it is.

This means that whatever the index has a return is the same return the fund would have.

The advantage of this is that such a fund would not incur any management fees which makes it cheaper.

A disadvantage however, is that its returns are tied to the index and if the index makes below average returns or losses, the fund will be affected.

Find out more on passively managed funds at https://brainly.com/question/14077557.

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