More than 40 years ago, respected US investment consultant, Charles Ellis, wrote an influential paper arguing that active investment management is a ‘loser’s game’. That is, a game that’s possible to win, but where the odds of doing so are so poor, that the winning strategy is not to play.
And yet, many investors continue to be drawn to active investment managers – those that buy and sell shares in the hope of beating the returns of the markets in which they invest.
Now, don’t get us wrong. We have nothing against active fund managers, most of whom are super smart, talented, good people. Our concern is that there are so many of these super smart and talented managers in the marketplace offering investment funds that it’s almost impossible – even for the brightest and best – to consistently outperform their peers.
And this, as counter-intuitive as it may seem, is exactly what the evidence shows.
In this month’s news, we share a just-published scorecard report on the performance of active fund managers compared with their market benchmarks. And we discuss why, even with their smarts and access to market information, it is virtually impossible for these active managers to consistently outperform.