Should-Read: David L. Ikenberry, Richard L. Shockley, and Kent L. Womack (1998): Why Active Fund Managers Often Underperform the S&P 500: The Impact of Size and Skewness http://www-2.rotman.utoronto.ca/kent.womack/publications/publications/skewness.pdf: “The S&P 500 index… comparison has generally cast an unfavorable impression of active fund managers…

…and has led many investors to embrace index funds. Systematic deviations from the benchmark are affected by two conventional practices of active fund managers: 1) equally-weighting their positions, and 2) holding small numbers of stocks. These two practices accentuate the statistical characteristics of longer-horizon stock returns and cause active manager performance to deviate predictably from broad-based benchmarks such as the S&P 500…. The size premium is not stable, and in recent years when large-cap stocks outperform small cap-stocks, equal-weighted portfolios have worked to the disadvantage of active investors. Cross-sectional skewness… provides a more subtle bias…. The “typical” median stock underperforms the mean…. On average, the impact of cross-sectional skewness appears to be about 20 basis points per annum for investors who hold 35 equal-dollar positions, and even more for less diversified portfolios…