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Assume a typical index fund or ETF charges a management fee of 0.10% per year and has low turnover resulting in trading costs of another 0.05% per year. Assume that an actively managed stock mutual fund charges a management fee of 1.0% and has much higher turnover resulting in trading costs of an additional 0.5% per year. The actively managed fund has a chance to outperform the market while the index fund will deliver the return of the market (less management and trading costs). What excess return per year must the actively managed fund earn to overcome the higher fees?

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