Active Managers Just Can’t Win the Loser’s Game
They’ve cut fees, made more concentrated stock bets and reduced churn. And they’re still underperforming.
As tough to win as ever.
Photographer: William Thomas Cain/Getty Images
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Active equity management has long been regarded as a “loser’s game.” That is how it was described in the title of a seminal book by Charles Ellis in 1975, and the description has seemed more and more apt as active managers have watched money flow out and into rival passive vehicles. The arithmetic is overwhelming — as more money in the stock market comes to be controlled by fund managers, so active management becomes a zero-sum game. On average they will match the market’s returns, minus fees. As the weakest drop out, the survivors will attempt to win a zero-sum game against ever more skilled opponents.