Active Managers Are Doing Horribly

By on December 4, 2010

Jeff Cox, CNBC staff writer at NetNet, reports on the dismal results obtained by active money managers this year.

Despite the stock market’s relatively robust performance in 2010, this has been a bad year for active managers—in fact, as bad as it’s ever been.

Just one in four beat their benchmarks for the year, according to data from Bank of America Merrill Lynch, which said this is the “toughest year on record” for active management.

Cox lists some reasons for the poor performance:

High correlations in the market, or movements in which stocks go up or down together.

Low spreads on returns.

Illiquid stocks have been bringing in higher returns compared to how much weight they comprise in the various indices.

SMA Comment: Although this may be the worst year for returns by active managers, they are actually never a good bet for odds appreciating investors.  The high hurdle of expense ratios and dealing with investor inflows/outflows during euphoria and panic phases make it nearly impossible for them to outperform over the long term.

Source:  CNBC
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