40 years ago Greenwich Associates founder Charley Ellis famously took active asset management to task for being, in game theory speak, a loser's game. Now Ellis is defending active management, except it's probably not a defense that fundsters will want to rely on.

Ellis just published a new article, "In Defense of Active Investing", which Morningstar's John Rekenthaler digs into in his latest "Rekenthaler Report". Rekenthaler finds Ellis' defense "unconvincing" and even wonders "whether Ellis sliding into satire."

"Active managers do set efficient security prices. They do help global markets to function smoothly," Rekenthaler writes. "But there's no particular reason why you need to own them."

Rekenthaler also counters one of Ellis' attacks, leveled against investors chasing five-star actively managed funds. (Morningstar, of course, issues the star ratings of mutual funds.) Rekenthaler argues that mutual fund investors' main performance-chasing pain comes from chasing hot asset classes, not from switching within funds in the same asset class. 

Edited by: Neil Anderson, Managing Editor


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