Growth

Rich and Co.

“Active Asset Managers Earn their Keep, But……”

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“…the edge they have enjoyed in offering profitable strategies may be eroding with the emergence of low-cost exchange-traded funds.

Asset managers who actively manage large institutional investments outperformed benchmarks by 42 basis points after expenses…Researchers…estimate that they achieved this through “smart beta” strategies, which weight portfolios to track various factors and indices that have historically earned abnormal returns.

But the study also suggests that asset managers’ advantage in offering these profitable smart beta strategies may be eroding because of the emergence of low-cost exchange-traded funds (ETFs), which can be used to replicate smart beta weightings with simple optimization calculations.

Because the average return across all investors must be the market return, the favorable performance of institutional asset managers must imply underperformance for other investors. The researchers conclude that “the average non-institutional or non-intermediated dollar — that is, investments made through retail mutual funds or directly by individuals or institutions — underperformed the market by 53 basis points even before fees.” oops

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Written by Rich and Co.

March 6, 2017 at 8:06 pm

Posted in Uncategorized

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