Fall of Active Fund Managers

The WSJ writes Charles Ellis is “widely regarded as the dean of the investment-management industry” (source: WSJ, August 23, 2014). According to Ellis, age 76, author of 16 books and former chairperson of Yale’s investment committee, “With rare exceptions, active management is no longer able to earn its keep.”

 

In a Summer 2014 Financial Analysts Journal article, Ellis points out that a large number of fund managers access “sophisticated analytical tools, electronic trading and instantaneous access to news,” an “arms race resulting in a kind of mutually assured destruction of outperformance.” The faster and smarter managers become, the more efficient the market. “The money game of outperformance after fees is, for clients, no longer a game worth playing.”

Even though no one has found a way to find money managers who will do well in the future, this will not stop investors and advisors from trying. Index funds and comparable ETFs accounted for 28% of total fund assets by the middle of 2014.