Read the rest here.Dec 16 (Reuters) - If your investments are being steered by active fund managers, here's a little tip: When you open that statement, you might want to shield your eyes.
That's because fund managers who pick and choose their stocks, rather than passively follow an index, are having a year to forget. Only 27 percent of large-cap managers are beating their benchmarks year-to-date, according to new research from Bank of America Merril Lynch . Growth managers, in particular, aren't earning their paychecks, with only 12 percent outperforming their indices.
Indeed, if anything, active managers seem to be getting worse. Last year, Standard & Poor's SPIVA scorecard - which measures active funds against their benchmarks - revealed that 34.3 percent of large-cap managers beat the S&P 500 for 2010.
Which begs the question: What's going on? "It's a very tough environment for active managers right now," says Srikant Dash, managing director of S&P Indices who founded the SPIVA scorecard almost a decade ago. "There seems to be limited opportunity to find winners."
Active-versus-passive investing used to be a lively debate for market wonks. On one side of the argument, index proponents like Vanguard Group founder Jack Bogle say pairing low fees with market-mirroring returns is the most reliable way to build your portfolio. On the other side, there are star managers like Legg Mason's Bill Miller, who famously beat the S&P 500 with his picks for 15 years in a row. Recently, though, the contest has turned into a bit of a rout - and even Bill Miller is exiting his flagship fund (but remaining chairman), after trailing the index for four of the last five years.
Some reasons for the mismatch are evergreen, like the higher fees that actively-managed funds must overcome. Active large-cap funds currently have an average expense ratio of 1.28 percent, versus 0.68 percent for similar index funds, according to the Chicago-based fund research firm Morningstar.
But the last couple of years have been particularly rough sledding for active managers, and it seems everyone has a different theory as to why. Some of the most oft-cited culprits:
Actually I don't see this years numbers as being significantly outside the norm. In most years somewhere between 70-80% of fund managers underperform the S&P 500 when you adjust for fees, expenses and the tax implications of active management. And on a side note, if you're paying 68 basis points in F&E for an index fund then you are being ripped off.
Modified: Typo correction.