Is All Hope Lost?
I admit, as an academic finance wonk, it’s hard not to look at SPIVA and crow. But the reality is active management isn’t going anywhere. After all, even in junk bonds, 15 percent of the active managers are beating the market. If you’re one of the folks who picked that active manager, then you’re reading this blog and laughing.
And that’s the problem: In every single SPIVA category, at least some active managers are beating their bogeys. In some cases, I’m sure they’re doing it consistently. After all, if I get 32 people in a room flipping coins, at the end of five flips, one person probably got heads five times in a row.
But try and tell that person who spent an entire career developing a complex coin-flipping business, with a bank of analysts, a Bloomberg terminal and a close personal relationship with the coin, that it was just luck. It’s just human nature. We all want to live in Lake Wobegon, where all the children are above average.
And that desire will keep investors and their managers going back to it, year after year. And soon enough, we’ll see them charting their course in ETFs more often than not. Net-net, that’ll be a good thing for those investors: Their managers may still underperform, but at least they’ll likely pay a bit less, and have fewer tax surprises.
But for me? SPIVA once again just shows me that it’s hard to beat the math. Check out the full report.
At the time the article was written, the author held no positions in the security mentioned. You can reach Dave Nadig at [email protected], or on Twitter @DaveNadig.