Many Happy Returns Outsmarting the Index: Strategies That (Sometimes) Work for Active Funds
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Jun 11, 2025 Active fund managers face the daunting challenge of outpacing benchmarks. Discover the strategies used by the few who succeed, and dive into the concept of the Information Ratio, a key metric for evaluating performance. The podcast also tackles the dilemma of funds that mimic their benchmarks, stressing the need for transparency. With critical insights on active versus passive investing, listeners explore risk dynamics and the allure of event-driven strategies. Tune in to navigate the complexities of fund management and investment preferences!
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Active Funds Mostly Underperform
- Most active funds underperform passive benchmarks despite expert management.
- This underperformance puzzles many as passive funds simply buy all index stocks.
Outperformance Often Just Luck
- Outperformance persistence in active funds is close to chance over a five-year period.
- This suggests most outperformance results from luck, not skill.
Fees Eat Up Active Alpha
- Active funds often generate slight alpha that fees consume entirely.
- Hence, net returns rarely exceed passive benchmarks after costs.