Today’s active managers can “no longer succeed by being very good, or even excellent. To succeed, they must be outstanding.” This according to an article in Morningstar.

The article cites a recent paper by Vanguard showing that the active management industry has become crowded (as evidenced by a steady increase in candidates registered for CFA exams). “The question then becomes, what are all these trained investors doing,” the article queries, “when indexing has become so popular?” With the increase in indexing, it notes, the number of investment professionals should be decreasing.

What Morningstar points out, however, is that indexing is “not as prevalent as is commonly believed” and cites a 2017 BlackRock report that measured how all assets are invested. The data, the article says, is “remarkable,” showing that just over 28% of the U.S. stock market is held in publicly registered funds. “The remaining 72% operates largely in the dark,” it argues, “as there is only limited information about how these assets are invested. Pretty clearly, though, much if not most of those monies are actively run.” On a global basis, the article argues, active management is even more prominent. “What’s more,” it adds, “those active assets affect the stock market’s pricing much more than do the indexed assets.”

The article concludes that although indexing gets a lot of press and attention, it is “not yet large enough to distort the financial markets. The challenge for active managers is not from the outside. It comes from within. It comes from the many tens of thousands of investment professionals who have raised the level of skill required to succeed at active management—and from the tens of thousands of new entrants who join the industry each year.”

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