Stock Pickers Underperform Again

August 10, 2016

 

A recent CNBC post highlighted how poorly active managers of stock funds are doing this year.  They pointed out that active fund managers had their worst first half since the data from Bank of America started tracking their performance in 2003.

 

Money keeps pouring into passively managed stock funds and ETFs (Exchange Traded Funds-like a mutual fund except it is traded during the day and usually follows an index).

 

Through June 2016 only 18 percent of Large Cap US fund managers beat the broad Russell 1000 index benchmark. The table below shows the percentage that beat that index for each year from 2003 to present.

 

 

 

 

Excuses from active managers abound, but the fact is there is a lot of competition.  To outperform their peers and an index after significant costs is too tall a challenge.

 

Returns from Large Cap US stocks can be captured with little cost using an index fund.  Returns from other asset classes that have higher expected returns can be best captured using funds that follow an evidence based approach, as Dimensional Fund Advisors (DFA) uses.

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