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Value Creation Blog

One Of The Most Ridiculous Articles I've Seen In A While

Posted by Josh Patrick

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One of the more ridiculous articles I've read in a long time comes from wealth mangemgent.com.  It talks about the reason that its time for us to consider active management of mutual funds again.

Here's the problem with this....... 

All of the things they talk about in this article is actually asset allocation.  For example, in one part of the article, the author talks about international small cap stocks doing well.  That may well be true.  In my opinion, that's an asset allocation issue, not an active stock picking issue.

In another part of the article, there is a reference to 55% of active managers beat their benchmark last year.  Yes, there are years where that will happen.  At the same time, there are two things to think about here. 

One - from time to time active managers will beat their benchmark.  It's not one year that counts, it's ten, twenty or even thirty years that counts.  When you look at that information, then active management loses and loses badly.

Second - What about the 45% of the funds that underperformed the benchmark. When you use a passive investment strategy, you are only trying to slightly underperform the benchmark with the low fees of that passive fund.  Choosing the fund that's a winner is always a problem and research shows that funds that outperform the index will often badly underperform in subsequent years.

Read the article yourself and let me know what you think.

Here's the article in it's full below.  Just click on the link and let me know what you think.

The rise of indexing has been undeniable over the last decade. Investors, attracted to their low-cost and simplicity, have been pouring money into index mutual funds and ETFs at the expense of active managers. via Has Passive Management Had Its Day?

Basics of Investment Management

 

Topics: investment management, investing, asset allocation