Re:Alzheimer’s Drug Sharply Slowed Cognitive Decline
by im2w1l on Saturday March 21, 2015 @03:26AM
(#9242096)
The more fund managers you have, the more efficient capital allocation you'll have. The fact that mutual fund managers do not beat the market means that we have too many fund managers chasing diminishing returns. The increased efficiency in the markets is too small for their wages.
As the fraction of active fund managers to passive fund managers decreases, this fact will change. More and more passive investors following in the footsteps of less and less active investors. This means the tracking error will increase. At some point the cost of the tracking error will be about the same as the cost of active management, and that is when we have the right amount of active management.
I think at least
http://mobile.nytimes.com/2015/03/15/your-money/how-many-mut...
But I want to comment on that. The article makes it seem like mutual fund managers provide no benefit whatsoever because they did not beat the market.
Bullshit. They might not help investors make money, but they still provide benefits. Saying otherwise like saying Apple and Google and Microsoft provide no benefit because they have not done any better than the tech sector as a whole. In fact, we can look at the growth of the market as a measure of how well mutual fund managers are investing.
We need to remember, mutual fund managers compete with other mutual fund managers. They're investments do matter as they dictate where investment money in our economy goes. They might not make money relative to the market as a whole, but they still provide important benefits to society.
For example, just because airlines only make .2% profits, their services benefit society tremendously.
Replacing mutual fund managers with investing in any company whatsoever (though limiting to public companies changes things) by "flipping a coin" like the article suggests, would likely have a very bad impact on the economy. It would have no effect on how well mutual fund managers do relative to the market, though.