The implications of style analysis for mutual fund performance evaluation

The author examines the relationships among risk, return, and cost in the nine categories of the Morningstar equity style box. Although conventional wisdom has long held that skilled active managers can significantly outperform the relevant indexes in narrow and presumably less efficient segments of the market such as mid-cap growth and small-cap value, the author finds that low-cost passively managed index funds have generally delivered the highest risk-adjusted returns in each of the nine Morningstar categories.