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By Jason Stipp | 10-06-2010 02:38 PM

Top Tips for Active-Fund Pickers

Morningstar's Christine Benz on sizing up management, benchmarking fees, assessing strategy, and keeping the right mind set.

Jason Stipp: I am Jason Stipp for Morningstar. The active versus passive fund debate continues to be a hot topic on Morningstar.com, but as with any heated debate sometimes it's easy to miss the forest for the trees--namely, picking the best fund for your portfolio.

Here with me to offer some tips on picking an actively managed fund is Morningstar's Christine Benz, director of personal finance.

Thanks for joining me, Christine.

Christine Benz: Jason, great to be here.

Stipp: So, we have had a few articles, videos on Morningstar.com recently. We got a lot of reader comments and response on this active-passive debate. It generates a lot of heat. Do you think it's worthy of all that heat that is generating out there on our site and elsewhere?

Benz: Well, I do think it's worth monitoring on an ongoing basis, so if at some point we see the data points clearly lining up in favor of an all-active or an all-indexing approach, that's something that we should all take to heart.

But as we look at the data I think that it's pretty gray overall. Yes, we have seen that active managers as a group have not outperformed, but I do think that there is some room for some active managers to outperform. And I think our fund analyst group has numbers that show that they've done a pretty good job of identifying them.

So, I think, ultimately, it's something worth paying attention to, but it shouldn't trump other factors when you're putting together your portfolio. So, I would still come back to asset allocation and also calibrating your own savings rate and your own withdrawal rate as being probably more important factors for most investors than actually the security selection piece.

Stipp: So what I'm hearing from you than is that you could have an all-index portfolio, you could have an actively managed fund portfolio, or you could have a mix and you probably can still do okay with any of those strategies.


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