Market clones are trouncing professional stockpickers—and it’s only getting worse

The computers are winning.
The computers are winning.
Image: Reuters/Mike Segar
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The case for investing in actively-managed mutual funds is withering.

Over the last year, 90.2% of US equity funds guided by money managers posted lesser returns than the market, according to the S&P’s semi-annual report of fund manager returns released on Sept. 16. 

In Wall Street parlance, that means nine out of ten mutual fund managers underperformed against their stock market index benchmark. Their performance wasn’t helped by a long-term investment horizon, either. The results are as dismal for five- and ten-year returns:

“There is nothing redeeming to say about the managers in the equity space,” S&P global research director Aye Soe told the Financial Times (paywall).

Investors tend to agree. Retail investors withdrew $328 billion from actively-managed mutual funds in the US for the year that ended July 31, reports research firm Morningstar. Over the same period, $401 billion flowed into index funds, which are constructed to mimic broad market indexes at a fraction of the cost.