Is Active Management Dead?
For many in the investing community, the overwhelming rise in the popularity of index funds has raised serious doubts about the future of actively managed funds. Market trends over the past few years have indicated that the days of big-name active managers such as Peter Lynch may be over, thanks to poor performance and high costs. Earlier this year, Vanguard CEO Bill McNabb weighed in on the debate.
Over the three years ended August 31, 2016, investors poured more than $1 trillion into index funds. Indexing now accounts for nearly a third of all mutual fund assets-more than double what it did a decade ago and eight times its share two decades ago.
By contrast, active management's commercial struggles have reflected its disappointing investment performance. Over the decade ended December 31, 2015, 82% of actively managed stock funds and 81% of active bond funds have either underperformed their benchmarks or shut down.
McNabb, and many investment professionals like him, have suggested that the only way that active management can survive is by significantly lowering costs. High costs often limit a manager's ability to deliver benchmark-beating returns.
**What do you guys think? Can active managers stage a comeback and slow down the flow of money into lower-cost index funds? Or will the ever-growing gap between passive funds and active funds spell the end of active management as we know it? **