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.
The fund industry says index concentration is the big risk. But the evidence points elsewhere. Compressed expected returns are what really threaten your long-term wealth — and the right response is simpler and cheaper than the industry would have you believe.
Terry Smith blames index funds for Fundsmith's five-year slump — but international market data, factor analysis, and 2024's high-dispersion conditions tell a different story. Here's what the evidence actually shows.
Robin Powell
Jan 156 min read
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