Wall Street’s Lame Excuses for Active Fund Performance

westloop — Mon, 09 Mar 2015 09:00:12 +0000

The securities industry is working itself into a frenzy trying to explain why you should ignore historical data that indicates most actively managed funds underperform their benchmarks. Some of the reasons they provide do not withstand scrutiny. Here’s a small sample of their lame excuses:

1. Last year was an aberration. According to Dan Culloton, Morningstar’s associate director of manager research, as interviewed by Kathleen Pender in a December 2014 SFGate article, most domestic funds own more small and mid-cap equities than the Standard & Poor’s 500 index. Large-cap stocks outperformed small-cap stocks in 2014. Because the S&P 500 index contains mainly large-cap U.S. stocks, actively managed funds couldn’t “keep up.”

Really? According to the mid-year 2014 SPIVA U.S. Scorecard, most domestic stock funds underperformed their benchmarks over the past five years. There was nothing aberrational about 2014.

Read the rest of the article at US News.

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Wall Street’s Lame Excuses for Active Fund Performance