Can stock pickers fight the rise of passive investors?

{"text":[[{"start":12.7,"text":"“Don’t look for the needle in the haystack. "},{"start":15.004,"text":"Just buy the haystack,” wrote John Bogle, the late founder of investment firm Vanguard. "},{"start":20.009,"text":"His quip is now conventional wisdom. "},{"start":22.363999999999997,"text":"America’s passively managed mutual funds and exchange traded funds — which mimic overall market indices — ended last year with more assets than active ones, following years of strong inflows. "}],[{"start":33.730000000000004,"text":"Though many still tout their stock and bond picking credentials, active fund managers only rarely generate alpha (or market-beating returns). "},{"start":41.422000000000004,"text":"In the long term the index tends to win, substantiating Bogle’s advice. "},{"start":45.827000000000005,"text":"So, why risk money hoping to unearth the next Google or Amazon when it is both safer and more lucrative to be invested in everything? "}],[{"start":53.830000000000005,"text":"That is the question active fund managers fear too many investors are now asking themselves. "},{"start":58.87200000000001,"text":"With the expansion of mutual index and ETF products — covering an array of assets and geographies — shifting cash into diversified trackers is simple. "},{"start":67.402,"text":"Investment apps allow it to be done with the flick of a finger. "},{"start":70.519,"text":"For households seeking to earn more from their savings, the growth of these low-cost investment vehicles is an unalloyed good. "}],[{"start":77.67,"text":"Seeking out star or dud stocks is a costlier, more research-intensive exercise, and necessitates a higher fee-based business model. "},{"start":85.724,"text":"Poor long-term performance and the allure of cheaper passive strategies — which account for 40 per cent of the $45tn worldwide fund assets tracked by Morningstar, up from 14 per cent in 2008 — have eroded active managers’ inflows. "},{"start":99.254,"text":"Many are cutting costs and restructuring. "},{"start":101.709,"text":"In its annual results this week, Edinburgh-based Abrdn committed to axing 500 jobs amid large outflows. "}],[{"start":null,"text":"

"}],[{"start":108.85,"text":"The industry and some economists worry that the continued flow of money into buy and hold funds could harm financial markets. "},{"start":115.17899999999999,"text":"Beyond a certain threshold, they argue, a lack of active traders engaged in weeding out over- or underpriced companies could lead to a greater misallocation of investors’ cash. "}],[{"start":125.17999999999999,"text":"For now this is just a theoretical concern. "},{"start":128.047,"text":"In practice, active managers still dominate the global industry. "},{"start":131.902,"text":"Finding alpha may be hard, particularly when markets are dominated by a few stocks, but opportunities have not suddenly disappeared. "},{"start":138.957,"text":"And big institutional investors, such as pension funds, still want to put their cash piles to work. "},{"start":144.712,"text":"Indeed, there remains plenty of interest in market-beating trades. "},{"start":148.59199999999998,"text":"For measure, hedge funds — which deploy higher-risk active strategies for accredited investors — currently outnumber Burger King outlets across the globe. "}],[{"start":157.73,"text":"This is a cut-throat industry. "},{"start":159.85899999999998,"text":"Active funds are competing with hard-to-beat passive strategies, and they are engaged in a zero-sum game with other active players. "},{"start":166.452,"text":"For each punt, there is a loser taking the other side of the bet. "},{"start":169.91899999999998,"text":"According to Morningstar, in the year to June 2023, 27 per cent of actively managed global large-cap equity funds beat the equivalent passive fund. "},{"start":178.862,"text":"Over a 15-year timeframe, only 3 per cent have. "},{"start":182.46699999999998,"text":"Active traders can hardly blame investors for switching to index strategies. "},{"start":186.672,"text":"To survive, they must prove they can actually make money. "}],[{"start":190.88,"text":"Slashing fees, by cutting business costs, is one option to boost the odds of making market-beating returns. "},{"start":197.422,"text":"Some funds have also found greater chances of beating benchmarks in bond markets and more niche corners of the stock market. "},{"start":203.577,"text":"Others, like Citadel or DE Shaw, have hired the brightest quant minds or tried deploying tech — from AI to high-frequency trading — to find alpha. "},{"start":211.957,"text":"Today’s economic uncertainty and the potential for higher-for-longer interest rates should create the volatility that hawk-eyed traders can thrive on. "}],[{"start":219.51999999999998,"text":"Yet investors are unlikely to diverge from Bogle’s safe and sound advice without a good reason. "},{"start":224.66199999999998,"text":"That means if the stock pickers are to survive and thrive, they will have to work even harder to offer them one. "}],[{"start":230.01999999999998,"text":""}]],"url":"https://creatives.ftacademy.cn/album/144596-1709434123.mp3"}