Marketing may lead investors to make bad mutual fund choices
If an investor was able to predict which mutual fund within a similar class of funds would perform the best, wouldn’t it be more likely he would invest in that fund? 
Not so, found a study of Standard & Poor’s 500 Index funds done by professors at New York University and Emory University.
It should be easy to distinguish the potential winners in the S&P 500 index funds category since they all invest in the same stocks held in the index.
The main determinant of success should be the cost of owning the funds, with the cheapest funds delivering the highest returns.
“They have substantial differences in fees and differences in return that should be economically significant to investors,” wrote Edwin J. Elton and Martin J. Gruber of NYU and Jeffrey A. Busse of Emory.
However, the worst-performing (and highest cost funds) delivered returns that were as much as 2.09 percentage points below the best funds, they found.
They examined the track records and cash flows of 52 S&P 500 funds from 1997 through 2001. They found, to their surprise, that the weakest S&P funds drew more money than they should have from investors, given their performance and fees.
“We would expect the investors who buy index funds to be among the most knowledgeable of all investors and to make the allocation among index funds to maximize their economic payoff. As we show, this is not the case,” the study said.
They theorize that payments made by fund companies to brokers who distribute their funds may be at the root of the problem.
“Thus, financial advisors or brokers who advise clients to purchase funds to improve their own profits could cause much of the flow into index funds,” they conclude.