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.
In January 2020, Terry Smith told his investors why Neil Woodford had failed: the star manager changed his game. Five years on, Smith's own Fundsmith letter records the highest turnover in the fund's history and a new taste for momentum — and the way he explains it matches a pattern behavioural researchers have measured in fund managers' own words.
Robin Powell
Jul 158 min read
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