The Pros And Cons Of Portfolios

606 Words2 Pages

For portfolio managers to experience positive returns they should be able to cover their expenses and costs of trading. Ian Domowitz, Jack Glenand Ananth Madhavan 2001 state that Investment performance reflects two factors 1. The underlying investment strategy of the portfolio manager 2. The execution costs incurred in realizing those objectives Donald B. Keim and Ananth Madhavan 1998 further state that there are two types of costs namely explicit and implicit costs also mentioned in Ian Domowitz, Jack Glenand Ananth Madhavan’s 2001 paper. Explicit Costs “Explicit costs are the direct costs of trading, such as broker commissions and taxes. Implicit costs represent such costs as the price impact of the trade and the opportunity cost of failing to execute in a timely manner.” Explicit cots are usually easily ascertainable from accounting records. These expenses involve management fees, which are considerably higher for actively managed funds (Burton G. Malkiel 2003). Actively managed portfolios in the USA usually have expense ratios of 140 basis points. Passively managed portfolios ...

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