At the turn of every year the financial media is inundated with press releases from the fund industry PR machine. The message, dutifully delivered by newspapers, magazines and online publications, is more or less the same each time — namely, this is the year of the stockpicker or the year that active management strikes back.
January 2016 was no different. If anything, the message this year was even more emphatic. The conditions, we were told, were perfect for active managers with the courage of their convictions to make their mark. Active funds, they said, were far better equipped than index funds for the topsy-turvy markets that we’ve been experiencing.
So, how’s it going so far? Er, pretty disastrously. CNBC is calling the first quarter of the year “not just bad, but history-making bad.. the worst quarter for stockpickers ever”.
It’s a similar story the world over, but active managers in the US seem to be having the hardest time of it. Just 19% of US equity funds beat their benchmark in Q1; only 6% of large-cap funds managed to do it. It’s now well-established that very few, if any, actively managed funds are able to beat the index after costs over any meaningful period of time. But when the vast majority can’t even outperform over a three-month period, it’s starting to get a little embarrassing.
To be honest, I’m running out of things to say about the losing streak that active funds have been on. Perhaps the only crumb of comfort for active investors is that, as John Authers rightly points out in the FT, “it is highly unlikely that active managers will do this badly again for a while”.
John’s view is that much of active management’s current difficulty is caused by “window-dressing” — in other words, constantly trying to make short-term returns look good — and I’m sure he has a point. Short-termism is patently not in the interests of investors but it is deeply ingrained in the industry culture, and constantly being reinforced by the way that fund managers are financially incentivised.
Right now, though, both short- and long-term returns look terrible, and it’s getting harder and harder for editors to justify trotting out phrases like “this is a stockpicker’s market” any longer.
Related posts:
2016 is a year for active management. No, seriously
Short-termism — why the whole investment industry is to blame
Video: UK investing is several decades behind the US — John Authers
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
