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Fund Spy

Finding the Middle Ground Between Index-Huggers and Gunslingers

Many funds go their own way without the scary ride.

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Index-hugging has a bad name, and for good reason. It refers to an actively managed fund whose portfolio looks suspiciously like that of the benchmark it tracks. This approach is a reliable way for a manager to post returns that won't offend anyone, such as shareholders or bosses. But they aren't likely to stand out, either. Worse, such funds cost much more than the comparable index fund would.

However, some investors hesitate to buy funds that invest without paying much (or any) heed to their indexes. They say investing with true iconoclasts is too risky, either because of the size of their contrarian bets, the fact that their boldness will backfire at times, or both. Bill Miller at  Legg Mason Value (LMVTX) is typically mentioned as a cautionary example.

Gregg Wolper does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.