No More Excuses

Active mutual fund managers continue performing badly, and they’re running out of excuses for their underperformance. Maybe they don’t have one.

Survey after survey shows that far less than half of active mutual fund managers beat their benchmarks. The latest SPIVA study from Standard and Poors put the 10-year winners at just under 18% of all active large cap stock pickers.

Active managers used to argue that the fault isn’t theirs, it’s rising markets. They claim that active investing proves its worth in bear markets. According to data from S&P that claim is spurious. In only one of the past four bear market years, 2000, did more than half of active managers beat their benchmarks.

And, even if they did actually outperform in bear markets you would still be foolish to invest actively as only in about 25 of 100 years do stock prices fall in aggregate.

So, what is the latest excuse for active managers poor performance; index funds. The popularity of index funds is smoothing out the market’s up and downs making prices more stable across the board. In other word’s since investors are buying most of the stocks that make up the economy there are fewer stocks that get ignored and therefore miss priced.

If that’s the case, then they are done for good, because there is little chance that index investors will go back to paying too much for active managers dubious advice.