The Decline and Fall of Fund Managers | WSJ

Jason Zweig predicts the demise of active fund managers:

So active management won’t disappear entirely. But index funds and comparable exchange-traded portfolios now account for 28% of total fund assets, up from 9% in 2000. And no wonder. Over the past one, three, five and 10 years, only one-fourth to one-third of all stock funds have beaten the index for their category, according to investment researcher Morningstar.

Meanwhile, index funds effectively match the returns of those market benchmarks at fees that often run only one-tenth of those of active funds.

Skeptics have pointed out that if individual investors — those Wrong-Way Corrigans of the financial world — are rushing into passive funds, then active funds might be due for a resurgence….But the net supply of outperformance always is zero; one fund manager can beat the market only at the expense of another who must lag behind it.

Not quite true. Active management is not a zero-sum game. Zweig is ignoring individual investors who, as a body, consistently under-perform the benchmark index.

Mega fund managers are more likely to promote index funds because their size makes it difficult to beat the benchmark index, while smaller, more nimble players are able to do so.

Read more at The Decline and Fall of Fund Managers – MoneyBeat – WSJ.

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