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Why active funds underperform even when the manager picks well

The managers running the biggest active funds picked stocks that beat the market in 2025 — and most still lagged their benchmark. A Morningstar do-nothing experiment and a body of academic research explain why active funds underperform even when the picking is good: skilled buying undone by poor selling, the hidden cost of trading, and the incentives that keep managers churning. The UK evidence points the same way.

Robin Powell

A trading floor of identical desks and repeating market charts, illustrating hedge fund crowding in the same small group of stocks

Hedge fund crowding just hit a record. This is what it looks like

Hedge funds are sold on diversification, uncorrelated returns and capital preservation. Goldman Sachs publishes the 50 stocks that turn up most often among their largest long positions, and eight of the ten biggest make chips, memory or the machines that make chips. Most of what a hedge fund does never reaches a regulatory filing. The disclosed long book is the one part investors can inspect, and at the middle of this year it was almost 40 per cent technology.

TEBI

Aug 257 min read

Jenga tower with weight concentrated on a few coloured blocks at the base, illustrating S&P 500 concentration risk and the fragility of portfolios reliant on a small number of holdings.

S&P 500 concentration risk: is your portfolio really diversified?

S&P 500 concentration risk is at historic highs. If you own a global tracker, your portfolio may be far less diversified than you think. Here's what you can do about it.