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Yes, I really like the essay - if only because it lines up so closely with my own prejudices.
My cheap summary is that it makes two arguments: (1) you're best off investing with a high-conviction, independent manager and (2) large funds almost never manage to achieve those two goals. It's really well-written and might point you down one of two paths: either invest in an intelligently designed index fund (VDAIX) or in a relatively small, relatively concentrated, relatively independent fund.
Some of the data - on the percentage of investor assets lodged in (doomed) closet-index funds - strikes me as compelling and damning. I'm apt to ponder it a bit more, perhaps pursue a question or two, and highlight it in our December issue.
Reply to @David_Snowball: If you do write about this, be sure to include Rekenthaler's 'bear trap' latest, sort of in the same or similar vein (clever about new risk including career risk )
Not having read the studies, I may be way off base, but IF active managers show persistence in exceeding their benchmarks, the citations in other older posts that almost no fund managers exceed index funds through two market cycles seems contradictory. Either the number of active funds is so small or the funds are so small that they escaped notice and weren't compared to indexers or the quoted study didn't include enough cycles. My vague recollection is that fewer than 1% of funds exceeded the index funds through three market cycles, but that could be an invented memory. Alternatively, the successful funds attracted so many assets that they had to fail due to a dearth of good ideas, requiring money to be shoved into "safe" stocks and returning to their benchmark.
Comments
My cheap summary is that it makes two arguments: (1) you're best off investing with a high-conviction, independent manager and (2) large funds almost never manage to achieve those two goals. It's really well-written and might point you down one of two paths: either invest in an intelligently designed index fund (VDAIX) or in a relatively small, relatively concentrated, relatively independent fund.
Some of the data - on the percentage of investor assets lodged in (doomed) closet-index funds - strikes me as compelling and damning. I'm apt to ponder it a bit more, perhaps pursue a question or two, and highlight it in our December issue.
For what it's worth,
David
Alternatively, the successful funds attracted so many assets that they had to fail due to a dearth of good ideas, requiring money to be shoved into "safe" stocks and returning to their benchmark.