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Rekenthaler Report

The Paradox of Skill Isn't Stock-Fund Managers' Only Problem

Converging style effects also hamper their chances at standing out.

Trouble With the Curve
Michael Mauboussin of BlueMountain Capital Management released a paper about bond management, "Looking for Easy Games in Bonds." Tuesday's column will discuss Mauboussin's fixed-income claims. Today's article, however, addresses the single chart that Mauboussin devotes to stock funds, which demonstrates that active U.S. equity-fund managers have been torpedoed by the paradox of skill.

Here's an analogy. (Mauboussin's, not mine, although he did not invent the argument.) Baseball no longer has .400 hitters not because today's players are worse than their predecessors, but, paradoxically, because they are better. A stronger, deeper group of aspiring big-leaguers has made The Show more competitive. The gap between the leagues' best and worst players has shrunk.