Boastful active fund managers eat their words


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On Wall Street in 2021, the turtle beats the rabbit.

The supposedly nimble and reactive active fund managers of Wall Street, who have been wondering for decades how profitable they can be in times of economic volatility, have their watches cleaned by slow-moving, passive fund managers, according to two new reports.

Fast and Furious

Active fund managers are investment advisors who make spontaneous decisions and react quickly to economic conditions with the aim of outperforming market returns. They sell themselves with their ability to make a lot more money in a turbulent market – like the one we’ve had for the past year and a half – than passive fund managers who invest in indices and stocks that make returns more in line with the market.

With a recession, then a crazy bull run in the markets, China’s tech raid, supply chain bottlenecks, inflation galore, and central bank gambling, active fund managers must have broken the bank lately, right?

No, say Morningstar and S&P Global researchers:

  • Morningstar analyzed 3,000 active funds and found that in the year through June 2021, only 47% outperformed their average passive counterparts.
  • The analysts of S&P Dow Jones Indices noted that in the 12 months before the 30 400 and S&P SmallCap 600.

Large-cap funds were particularly risky, with over 40% failing in a 10-year period due to poor stock bets by fund managers.

The race wins slowly and steadily: In the long run, active fund managers will perform much worse. According to Morningstar, only 25% of active funds beat their passive counterparts over 10 years. And only 11% of actively managed large-cap funds outperformed passive funds over the same period.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.


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