Will Active Managers Begin To Outperform?

davfor

Perhaps the market cycle has reached the point that it will be easier for active managers to justify their fees. The author writes:

"While seeing accounts in San Francisco recently, I read a story about Boston-based Fidelity having a good year in 2014 from an earnings and revenue standpoint, but that they were losing assets to passive investments, aka index funds, ETFs, etc. Here the observation is that this is what you see at inflection points where individual investors are doing the exact wrong thing at the wrong time."

advisorperspectives.com/commentaries/20150325-raymond-james-active-vs-passive-redux

Mark

The author works for Raymond James. Can you say "possible conflict of interest" because nothing he wrote in the article had me pumping my fists in the air.

Tampabay

all of them? or just the best?

davfor

Mark
12:10PM Flag
The author works for Raymond James. Can you say "possible conflict of interest" because nothing he wrote in the article had me pumping my fists in the air.

Yes. I think there is clearly a conflict of interest. But, I think there were some good points in his observations and the observations he referenced in the article. Indexes clearly tend to outperform during prolonged periods having strong general up treads. "Good" active managers have better prospects of outperforming when markets are choppy and during prolonged market declines.

I expect the 90 to 10 out-performance by index funds in the US large cap sector of the stock market will probably be substantially reduced when viewed over the upcoming 10 year period. If that turns out to be the case, investors who currently are or who now choose to invest in quality actively managed funds will have increased odds of being rewarded for their increased spending on fees. (It is my expectation the odds of that happening outside the US large cap area and among foreign funds is higher than in the US large cap area.)

Doing homework, not picking closet indexes, and periodic monitoring will be necessary. But, it is my expectation investing in funds like YAFFX, BBTEX, and PRBLX -- the chosen 3 in the "large cap, US stock funds" section of my core portfolio -- instead of VFINX provides good prospects of achieving performance that will be at least as good as VFINX over the upcoming 10 years with lower volatility. Time will tell!

Mark

davfor, fwiw I've held FCNTX since the late 70's and I don't recall myself ever being tempted to swap it out for a LC index fund of any sort. Sometimes in investing it's just a matter of choosing what you are the most comfortable with and ignoring the day-to-day noise.