|
Christopher Pavese, Chief Investment Officer of Broyhill Asset
Management, via Harvest Exchange:
According to Morningstar, the average US equity manager, has
underperformed the S&P 500 Index over the past one, three and five
years. Given investors natural tendency to chase what’s working, and
ditch what’s not, "the death of active management" is becoming a popular
consensus sentiment.
Before writing off active management and jumping on the index fund
bandwagon, investors would be well served to pause and reflect. Might
this be a cyclical phenomenon? If so, when have we seen this in the
past? And most importantly, how did it play out last time? Spoiler
alert: yes, this is cyclical; yes, we have seen this in the past; no, it
didn’t turn out so hot for overvalued indices overweighted in overvalued
large caps.
Ed Chancellor’s Capital Account provides some historical perspective
(pair with the more recent Capital Returns , and you have the two best
finance books I’ve read this year). For memory-challenged-investors,
the book offers a wonderful review of the decade leading up to the tech
bubble, via a collection of essays from Marathon Asset Management.
Here are a few excerpts for all you closet indexers out there:
The periods over the last few years when the indices have outperformed
active managers have largely been due to distortions created by the
indices themselves, rather than to the alleged superiority of index
investments....................... To view our full article Click here
|
RSS
