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Rating:Reformed Broker: Active Managers Fail in Persistence Not Rated 2.0 Email Routing List Email & Route  Print Print
Thursday, December 26, 2013

Reformed Broker: Active Managers Fail in Persistence

News summary by MFWire's editors

You can't pull the wool over investors eyes anymore, according to one investing pundit. They understand that active managers can be the market, but only not for long, and so aren't willing to pony up huge fees for these kinds of mutual funds anymore.

That's the message from Joshua Brown, who operates the blog The Reformed Broker. In a recent blog, Brown writes that persistence, or rather the lack of it is the bane of active managers.

This is message, in and of itself, is not unique, but it does serve as one more steady beating discount drum for the army of low cost indexers who are currently the war for flows.

In his article, Brown looks at the performance of Bob Olstein's Olstein Capital Management. His funds have had great runs, as well as some periods of horrible losses which ate up ugly amounts of alpha from other periods.

Brown then compares this roller coaster performance to Vanguard, which offers more or less market performance in their funds but is cheap enough to garner 98 percent of the equity flows in 2013.

To further make this point, Brown cites the latest SPIVA scorecard, a favorite source of agita for the active management set. For example, the SPIVA December 2013 Scorecard shows that, "of the 692 domestic equity mutual funds that were in the top quartile (25%) of performers in September 2011, only 7.23% are still there. The other 93% of September 2011's “Best Funds” have fallen back into one of the bottom three quartiles."

TUMS anyone? 

Edited by: Tommy Fernandez


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