Every year Dimensional funds analyzes the past performance of all available mutual funds to see how this group performs relative to their benchmark. Their findings have consistently shown that mutual fund management as a group, largely underperform the benchmark. Even for the funds that do outperform, their ability to replicate that performance going forward is what you would expect by chance alone.
More is Less
In addition to these findings, DFA found that the more active a manager is (or the more turnover in the portfolio) the greater the likelihood of underperformance. [1] As you may recall, active management is an investment philosophy that consists of professional investors that implement buy, hold, and sell strategies. In most cases, these managers earn advance degrees from prestigious universities and certifications that take years to complete. Their full-time job is to compete with hundreds of thousands of other qualified professionals, in a zero-sum game, to outperform the benchmark. It is remarkable that all this investment in education, time and resources results in collective underperformance. It makes you wonder, if the professionals who spend their lifetime dedicated to this craft have such a difficult time outperforming how does a retail investor navigate the market complexities? To learn more watch the video below.
[1] https://static.fmgsuite.com/media/documents/6b92d4e8-2594-4609-a72d-a959e1e28d38.pdf
