The numbers are in and it’s not pretty. So called “active” money managers got clobbered in 2008.
A whopping 58 percent of actively managed funds lost more than the value of the benchmark against which they compare themselves, according to a new report from Morningstar.
Small-capital stock managers, who are supposed to have the most room to outperform their benchmarks, underperformed by a staggering 72 percent.
Even a wide and generally safer (and cheaper) index fund investment would have been a big loser last year. The S&P 500 dropped 37 percent for the year.
But check out the numbers for David Frazier, editor of ETF investing letter The ETF Strategist, which helps investors get ahead of major market trends.
Frazier’s Aggressive Portfolio of exchange traded funds (ETF) dipped just 3.2 percent last year.
Even his conservative ETF portfolio greatly outperformed the S&P, sliding 10.7 percent in 2008.
“Active managers say they’ll protect you when the market falls by getting ahead of it,” Lee Kranefuss, chief executive officer of Barclays Global Investors’ iShares, tells Bloomberg. “That promise is hard to deliver on.”
Active managers like to tell their clients that they can beat their benchmarks because they can change holdings according to the market environment, something big mutual funds usually do more slowly.
Active managers, too, have the freedom to sit on cash during a bear market. Most ordinary mutual funds stay invested by mandate and end up in supposedly “defensive” stocks in a bear market in order to keep the bloodshed under control.
But the proof is in the pudding: Their numbers just don’t compare to Frazier, who actually did the things active managers claim they do, and at a tiny fraction of the cost — just an annual newsletter subscription.
Plus, ETFs are very cheap to own. Rather than trade in and out of bellwether stocks in a sector, say technology, hoping to capture some upside, an investor can buy Powershares QQQ, which follows tech stocks, or another Frazier pick like iShares IWM, which tracks the Russell 2000 Index of smaller companies.
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