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You can find lots of research on it but first, between 85-90% of actively managed investment funds underperform their benchmark: https://www.ifa.com/articles/d

You can find lots of research on it but first, between 85-90% of actively managed investment funds underperform their benchmark: https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/ https://www.ifa.com/articles/despite_brief_reprieve_2018_spi... That means it is very, very hard to outperform. Then, if you do outperform, that tends to be an exceptional year followed by not so great results. https://www.morningstar.com/articles/1017292/what-to-expect-from-funds-after-they-gain-100-or-more-in-a-year-trouble-mostly https://www.morningstar.com/articles/1017292/what-to-expect-... Key comment: "Of the 123 stock funds that gained 100%-plus between 1990 and 2016, just 24 made money in the three years following their big gain, with the average fund losing around 17% per year." Now, is it possible that ARK is an exception - of course. But the math would tell you that is highly unlikely.

fairity 5y ago
Interesting read, but the data seems extremely skewed. Quote from the same article: "Eighty-eight of the 123 funds were go-go tech/Internet darlings that soared in 1999 but crashed after, losing 24.1% per year from Jan. 1, 2000, to Dec. 31, 2002." So, it seems like the data comprising the "after-years" is highly skewed towards years when the overall market crashed, which explains the negative returns. If your claim is true, shouldn't there be a fund that simply indexes the broad market minus top performing hedge fund holdings? If not, why not?
- inthewoods 5y ago
  Most active manager performance is mean reverting. They have a good year, and then there is little evidence of persistence in their future returns. Here's a larger study from S&P: https://www.spglobal.com/spdji/en/documents/research/research-fleeting-alpha-evidence-from-the-spiva-and-persistence-scorecards.pdf https://www.spglobal.com/spdji/en/documents/research/researc... "We observe little to no evidence of performance persistence among active managers, except in the large-cap value and real estate categories. For example, out of 1,034 large-cap funds that existed in the universe as of Sept. 30, 2013, only 19.73%, or 204 funds, outperformed the S&P 500. In the following year, 15.69% of those 204 funds outperformed the benchmark. By the end of the third year, none of those original 204 funds were able to outperform the S&P 500 on a consecutive basis." What is implied from this data is that if a manager has a good year, they are unlikely to match it going forward. So only 20% beat an index, and then only 16% of those that did beat it the next year.

fairity 5y ago

Interesting read, but the data seems extremely skewed. Quote from the same article: "Eighty-eight of the 123 funds were go-go tech/Internet darlings that soared in 1999 but crashed after, losing 24.1% per year from Jan. 1, 2000, to Dec. 31, 2002." So, it seems like the data comprising the "after-years" is highly skewed towards years when the overall market crashed, which explains the negative returns. If your claim is true, shouldn't there be a fund that simply indexes the broad market minus top performing hedge fund holdings? If not, why not?

inthewoods 5y ago
Most active manager performance is mean reverting. They have a good year, and then there is little evidence of persistence in their future returns. Here's a larger study from S&P: https://www.spglobal.com/spdji/en/documents/research/research-fleeting-alpha-evidence-from-the-spiva-and-persistence-scorecards.pdf https://www.spglobal.com/spdji/en/documents/research/researc... "We observe little to no evidence of performance persistence among active managers, except in the large-cap value and real estate categories. For example, out of 1,034 large-cap funds that existed in the universe as of Sept. 30, 2013, only 19.73%, or 204 funds, outperformed the S&P 500. In the following year, 15.69% of those 204 funds outperformed the benchmark. By the end of the third year, none of those original 204 funds were able to outperform the S&P 500 on a consecutive basis." What is implied from this data is that if a manager has a good year, they are unlikely to match it going forward. So only 20% beat an index, and then only 16% of those that did beat it the next year.