This is the second in a series of articles that analyse active fund management performance. The first article focused on skewness and size-premium factors. This article will focus on the three factor model and fundamental indexation and, how they attempt to explain fund performance.

Research has shown that actively managed mutual funds underperform their benchmarks. According to Standard & Poors:

“Over the last five years, the S&P 500 has outperformed 60.8% of actively managed large-cap U.S. equity funds; the S&P MidCap 400 has outperformed 77.2% of mid-capfunds; and the S&P SmallCap 600 has outperformed 66.6% of small-cap funds”