An August report by S&P Indices found more than 80 percent of actively managed U.S. stock funds underperformed the market in 2011. Why, you ask? Fees. The average mutual fund charges up to 3 percent of annual returns for the privilege of divvying up your investments, according to Forbes, which means they've got to promise returns of at least that amount for investors to break even.
"More often than not, a majority of funds underperform because returns are reduced by investment fees to cover fund operations, including costs to pay managers and analysts who support them," writes the AP's Mark Jewel. "Those fees are difficult to offset, even if a manager is a strong stock-picker."
Furthermore, the SEC cites a study by former University of Southern California professor Mark M. Carhart, who found "no evidence that portfolio managers are particularly skilled or informed, characteristics that would justify additional fees."
By Business Insider