We introduce a new holdings-based procedure to identify whether a mutual fund has a benchmark discrepancy, which we define as a benchmark other than the prospectus benchmark best matching a fund's investment strategy. We find that funds with a benchmark discrepancy tend to be riskier than their...

I use exchange traded funds to construct low cost benchmarks for actively managed mutual funds. The benchmarks can be identified in advance, require no leverage or shorting, and require only annual rebalancing. The average fund underperforms its benchmark by 1% per year after expenses, a...