Overview of Key Terms Index funds attempt to closely mirror performance of the total market or market sector with passive management. Actively managed funds attempt to outperform a market after accounting for expenses. Fund managers charge for their management, and in turn raise the gross expense ratio of the fund. Actively managed funds tend to have considerably higher expense ratios than passive index funds. We’ll break down why it matters. Active vs Passive Management Consider a higher expense ratio as compensation for a hedge fund, mutual fund, pension fund managers etc. professional savvy. We would assume fund managers who have spent years studying markets, would have an edge over the layman investor. In theory their expertise should allow opportunity to outperform standard market growth. Historical evidence have shown this simply isn’t true.