Nothing. In fact, some active managers invest in ETFs as part of their...ETFs.

http://www.cambriafunds.com/gmom.aspx

The fees add up in the long term to reduce the overall returns.

Part of acting like an index fund would be keeping fees low.

Then just buy the index fund. I can buy an index fund that has fees of 0.2%. If the managed fund has fees of 1.2% that means it needs to beat the index by at least 1% to come out even. If you can beat an index by 1% while trying to replicate an index, then you're either a genius or cheating.

The numbers are even worse if it's in a taxable account. That means you need to beat both the management fee and the taxes because you'll end up paying taxes for all the turnover too.

Well the idea is to beat the indexes on a net basis. The fees would be much lower (than 1.2%) because it would not be very active. It would be replicating the index (which lots of people can do fairly easily) but with a tweak or 2 like a slight change in weighting or trimming the 50 worst X or lopping off the 10 biggest caps. I've seen some back-testing on stuff like this that can get you that extra point or 2.

Like only buy the ones whole will go up in price?

My guess is that if you back test a few simple filters that you could find a point or 2.

The main differences between an index fund and active management is indexers reveal their portfolios and don't trade as much.

Arbitrage opportunities disappear when people exploit them. The markets are `anti-inductive'.