This paper analyses the relationship between active management and performance in US equity mutual funds over the period 2001-2011 for both gross and net returns. Mutual funds achieve nonzero abnormal performance through strategies that produce differentiated results which are not captured by risk factors. Active management is measured by time-varying parameters, idiosyncratic risk and turnover. The results show a negative aggregate performance close to zero. Performance is worse for non-survivor mutual funds. A U-shaped relation is found between active management and performance, thus both the best and the worst mutual funds show a higher level of active management. This behaviour is also found in the relationship between expenses and performance. Active management therefore implies selecting different strategies or investment bets with higher expenses and an unequal performance is achieved. However some level of persistence in the success of these bets is only fond for the best mutual funds. Moreover the results of these bets show a low level of similarity in terms of herding between the best funds. In contrast, the failures of the worst mutual funds are not persistent before expenses are considered, but there is a higher level of herding among these funds. In sum, the best funds reflect persistence and particular skills, whereas the worst present non-persistence and common failures.
