Tags: Zweig | active | stock | managers

WSJ's Zweig: Active Stock Fund Managers Heading Way of Dodo Bird

Sunday, 24 Aug 2014 08:17 PM

By Dan Weil


The underperformance of actively-managed stock mutual funds doesn't bode well for their future, says Wall Street Journal columnist Jason Zweig.

"Active fund management is outmoded, and a lot of stock pickers are going to have to find something else to do for a living," he writes, citing renowned money manager Charles Ellis, founder of investment adviser Greenwich associates and former chairman of Yale University's investment committee. 

"The debate about whether you should hire an active fund manager . . . or a passive index fund . . . is over." 

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Over the past one, three, five and 10 years, only 25 to 33 percent of stock funds have topped the index for their category, according to Morningstar, Zweig says.

And actively-managed funds charge higher fees than their index brethren.

"Active management won’t disappear entirely" because investors will always be seeking the next Warren Buffet, Zweig says. "But index funds and comparable exchange-traded portfolios now account for 28 percent of total fund assets, up from 9 percent in 2000."

Still, there are limits to the usefulness of index funds, says Washington, D.C.-area financial adviser Steven Goldberg.

"I think index funds have a place in virtually every portfolio. But, in my view, few portfolios should consist entirely of index funds," he writes in Kiplinger.

"Why? Because index funds are designed to give you all the upside of bull markets and every bit of the downside of bear markets. Only good actively-managed funds can protect you from some of the pain of a bear market."

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