Yet a bigger issue is most managers are still charging too much. One 2016 study by fund company Fidelity found that from 1992 through 2015, active U.S. large-cap stocks funds in the lowest quartile of fees from the largest five fund families beat the benchmark by 0.18 of a percentage point a year on average.
Meanwhile, the average active fund lagged the benchmark by 0.71 percent.
There may also be a cyclicality to manager underperformance. Brian Hogan, who oversees some $900 billion as president of Fidelity’s equity and high-income division, believes the post-2008 financial crisis era has been particularly tough for active managers, as monetary stimulus from global central banks has driven stocks uniformly upward, making it harder for active managers to differentiate themselves.
But since the U.S. Federal Reserve ended its stimulus program in October of 2014 and began raising interest rates in 2015, Hogan says the environment has changed. “That backdrop is becoming very helpful to the active industry,” he says. “It’s causing there to be less correlation among stocks and more dispersion in their performance. Those are things active managers like to see. I think the next three to five years are going to be really fun for the active industry.”
The highest-paid managers better hope he’s
— By Lewis Braham, special to CNBC.com
