STREET DOGS

From an article in the Wall Street Journal: Over the 15 years to December 2016, 82% of all US funds trailed their benchmarks, according to the latest S&P Indices Versus Active funds scorecard. It was the first year that the analysis included 15 years of data, helping to smooth out periods of volatility, which can affect the performance of active managers.

The results coincide with the rise of passive investing and a growing view among investors and financial advisers that active managers can’t pick stocks well enough to justify the fees they charge over extended periods and that even those managers who do outperform their passive counterparts can’t sustain it year after year.

“We often hear from active managers, ‘You need to measure us over a longer-term cycle,’ ” says Aye Soe, MD of research and design at S&P Dow Jones Indices. “But even over a full market cycle, which includes peaks and troughs, we still see the majority of active managers performing unfavourably against their benchmarks.”

Among more than a dozen categories tracked, 95.4% of US mid-cap funds, 93.2% of US small-cap funds and 92.2% of US large-cap funds trailed their benchmarks, according to the data.

To make matters worse, the survey period ended during a year of geopolitical tumult of the sort that sometimes is thought to benefit active managers, with market-churning events. However, not even the volatility that came with those events was enough to give many more active fund managers the edge over indices.

“Can you imagine if 92% of the cars sold by auto companies couldn’t drive?” asks Joshua Brown in a commentary on the report. “Or if 92% of the pills sold by the pharmaceutical industry were placebos, or worse? How is this a thing that exists?”