STREET DOGS
Why investors should join the index revolution now
From Charles D Ellis: An active manager must overcome the drag of about 3.25% in annual operating costs. If the fund manager is only to match the market’s historical 9% return, he or she must return 12.25% before all those costs. To do as well as the market, a manager must be able to outperform the market return by over one-third, or 34.1%! Unhappily, the basic assumption that most institutional investors can outperform the market is false. Today, the institutions are the market. It is precisely because investing institutions are so numerous and capable and determined to do well for their clients that investment has become a loser’s game. Professional investors cannot, as a group, outperform themselves. In fact, given the cost of active management — fees, commissions, market impact of big transactions — investment managers will continue to underperform the overall market — winning the loser’s game. Standard & Poor’s Dow Jones Indices published a statistical analysis in 2016, detaili...
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