One Very Big Strike Against Active Management
And two smaller positives, which need to be made larger yet for active management to regain its popularity.
Fifteen Years Now
On April 13, The Wall Street Journal reported that “indexes beat stock-pickers even over 15 years.” That is, after paying their expenses, most actively run stock funds posted lower returns from January 2002 through December 2016 than did their no-cost benchmarks. That would be bad enough if the benchmarks were merely theoretical. Unfortunately for actively managed funds, however, index funds have turned stone into flesh, making the competitive threat all too real.
You knew that already. Technically, you did not know that the indexes had triumphed for 15 years, because previous active management versus index comparisons have been conducted over 10-year periods. But you would have strongly suspected such a thing.