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.
Warren Buffett built his fortune through active investing, yet tells his family to put 90% in index funds. Why? His 44-year record reveals the answer: from 1981-2002, he achieved statistically significant alpha. But from 2003-2024, his performance became indistinguishable from luck. Academic analysis shows even his early success was systematic factor exposure plus cheap leverage, not stock-picking magic. If Buffett couldn't sustain alpha in mature markets, your fund manager w
Robin Powell
Oct 18, 202514 min read
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