Is Active Management Truly a Loser’s Game?

By Jeff Bernier via

If you’ve ever been to Las Vegas, you know just how tricky gambling can be. Sometimes you win. Sometimes you lose. If you’re winning, the guy next to you admires your skill. If you’re losing, he’ll pity your bad luck. And whether you’re playing craps or black jack or a simple slot machine, every game you play gives you just enough wins to keep you smiling and playing, and just enough losses to keep the casino thriving. In the end it’s the casinos—not the gamblers—that are the biggest winners. There’s a reason they give you all those free drinks while they’re raking in your chips!

Seeing the loser’s game for what it is might be easy in Vegas, but for investors, the writing on the wall isn’t always so clear.

Just take a look at how many investors are reacting to the current stock market. The bull market that began in early 2009 has delivered more wins than most could have predicted. And of course, investors like to win. But 2018 has been painting a slightly different picture. The first half of this year delivered increased volatility, while stocks have been trading mostly flat and bonds have been slightly down.

How have investors reacted? U.S. equity funds and ETFs experienced net withdrawals of $41.3 billion, the most in a month since early 2008. For the first quarter of 2018 as a whole, net equity redemptions totaled $53 billion. February and March also constituted the very first two-month sequence of equity ETF outflows since 2008, according to Credit Suisse, with much of that selling taking place in passive investment products favored by retail investors. Then, just last Monday, stocks suffered their worst day in weeks in the wake of more trade-war talk from the White House.

It’s clear that investors are growing wary. And in this lower return environment, many investors may be tempted to try to “market time” or to gravitate toward more “active” strategies. After all, active strategies promise to boost returns by outperforming their benchmarks. It’s every investor’s dream, right?

Click here to read the full story on