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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 Ladbrokes betting slip beside a share certificate on a pub table, illustrating the difference between betting versus investing

Betting versus investing: why crowds win in one but not the other

Prediction markets and sports betting price outcomes almost as accurately as the stock market prices companies. A new Morgan Stanley report explains why that shared accuracy still leaves nearly every bettor poorer, and nearly every long-term investor richer.

TEBI

Aug 64 min read

A living room in the evening with a financial news broadcast playing on a wall-mounted television, a phone lying face-down on the sofa arm and a mug of tea on the side table

The 'biggest market anomaly ever found' — and why you still can't beat the market

A new working paper has documented the largest price inefficiency ever found in the stock market: a pure-news signal with a Sharpe ratio of 3.1, more than double any known factor. But the researchers used a frontier AI model, millions of news articles and institutional trading costs to find it — and the same evidence that shows markets are inefficient also shows why an ordinary investor still can't beat them.