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In the finance community there is a huge debate about whether or not active portfolio managers can provide better returns than passive managers. While active managers often provide excess returns, the costs of running an active fund offset whatever gains were made in the market. The objective of this report is to figure out whether or not active funds provide larger returns than passive funds on a cost adjusted basis. This report will identify which type of fund is a more cost effective investment, as well as identify different properties of funds and how they operate. The goal of doing this research is to provide information to the average investor, rather than a multi-millionaire, about what kind of fund may be more appropriate for them to invest in. To successfully complete this project I collected quantitative fund data from fidelity, and qualitative information from various finance and business journals. After running a multivariate analysis of variance on my data I found that passive funds in the 1 year period provided significantly greater returns than active funds on a cost adjusted basis. Next, over the 3 year period, there was no significant difference between the returns of active and passive stock funds. However, during the 5 year period return active funds proved to be a more cost effective investment strategy. From my results I have concluded that active portfolio management is not a more cost effective investment tool than passive management.

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