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Advisor Insights

The Paradox of Skill

Managers are better than ever—and playing on a leveled field.

Vanguard recently published a short paper called “Myth: Active Management Performs Better in Certain Market Segments.”[1] Taken literally, that claim is untrue. Over any time period, some categories of active funds fare better than others. Thus, per Morningstar’s most recent Active/Passive Barometer research, three times as many actively run emerging-markets stock funds beat their benchmarks over the trailing 10 years as did active large-blend U.S. stock funds.[2]

The title isn’t fully accurate at the next level of abstraction, either. Not only do some categories of active funds outperform others over a single time period, but extending those studies also uncovers some persistence. Active emerging-markets funds routinely give indexers a stronger fight than do large-blend U.S. stock funds. Small-company stock funds have more relative winners than do blue-chip funds.