‘Active fund managers face extinction’
Discussion
The Business section of today’s Times argues that active fund managers face extinction as investors turn more passive. What do you think?
Good. They play fast and loose with other peoples money, reap huge rewards when they get it right, but when they get it wrong, they just shrug their shoulders, take a juicy cut anyway and f
k off into the sunset. I'll probably end up working an extra 3-4 years thanks to these shagwits, so I really could not give a fk.
k off into the sunset. I'll probably end up working an extra 3-4 years thanks to these shagwits, so I really could not give a fk.Salted_Peanut said:
The Business section of today’s Times argues that active fund managers face extinction as investors turn more passive. What do you think?
Is this article a rehash from 20 years ago? Struggling to see how it can be considered news in 2025. https://rationalreminder.ca/podcast/332
"Yeah, sometime around 2000, somebody turned on the big computer and they just started pushing all the prices to the right places a lot faster than they used to"
The extract from the article doesn't mention hybrid smart-beta-type funds/ETFs that use algorythms to automatically change portfolio constituents and weightings to meet specific objectives e.g. low volatility, increasing dividends etc.
My view is that while there will always be a requirement for knowledgeable niche fund managers where the value provided can be demonstrated and rewarded, e.g. small biotechs etc, most of us - particularly younger investors who are more comfortable outsourcing portfolio management to tech - will be putting our money into a combination of simple low-cost trackers and smart ETFs
More details:
https://www.investopedia.com/terms/s/smart-beta-et...
A (US-centric) screener:
https://etfdb.com/themes/smart-beta-etfs/
My view is that while there will always be a requirement for knowledgeable niche fund managers where the value provided can be demonstrated and rewarded, e.g. small biotechs etc, most of us - particularly younger investors who are more comfortable outsourcing portfolio management to tech - will be putting our money into a combination of simple low-cost trackers and smart ETFs
More details:
https://www.investopedia.com/terms/s/smart-beta-et...
A (US-centric) screener:
https://etfdb.com/themes/smart-beta-etfs/
AllyM said:
How has Fundsmith performed recently? Not great I expect. Terry still takes his near 1% fee of course.
Gambling on an active fund manager just isn’t for me.
Last three years annualised return is just over 2% which is indeed pretty miserable.Gambling on an active fund manager just isn’t for me.
Edited by AllyM on Friday 3rd January 14:10
sideways sid said:
The extract from the article doesn't mention hybrid smart-beta-type funds/ETFs that use algorythms to automatically change portfolio constituents and weightings to meet specific objectives e.g. low volatility, increasing dividends etc.
My work (banking and insurance legal stuff), now and again brings me into contact with the fund management world, and I've often been struck by how much bullst there seems to be with anything to do with active management. Now I'm happy to be proved wrong here, but that 'smart beta' stuff sounds very much like more bullst to me. Like investment managers have thought 'Oh no! people seem to be cottoning on to the fact that paying 0.6% more than a passive fund in fees is a mugs' game, what to do? I know, why don't we do away with the active managers, but overlay a passive fund with some sort of algorithm and see if people will pay an extra 0.2% for that? Call it 'smart', like phones and tellies, and we might be able to convince some people that we know what we're doing for a few years longer'. Apologies for the cynicism but like I say it does come from direct experience of the subject. trickywoo said:
Last three years annualised return is just over 2% which is indeed pretty miserable.
Although last 2 years is a lot better at 10.8%pa, which whilst being better than the FTSE 100 (8.6% with divs re-invested) is a long way off MSCI World (in GBP terms) of over 19%. I prefer to use the 10 year return figure of 13.42%pa compared to 12.89% for £ MSCI World or 6.2% for the FTSE 100.
So you can use different terms to suit your argument depending on your belief!
Roger Irrelevant said:
Now I'm happy to be proved wrong here, but that 'smart beta' stuff sounds very much like more bullst to me. Like investment managers have thought 'Oh no! people seem to be cottoning on to the fact that paying 0.6% more than a passive fund in fees is a mugs' game, what to do?
Factor investing has been around for many decades.t to me. Like investment managers have thought 'Oh no! people seem to be cottoning on to the fact that paying 0.6% more than a passive fund in fees is a mugs' game, what to do? https://en.wikipedia.org/wiki/Dimensional_Fund_Adv...
https://www.wallstreetoasis.com/resources/skills/f...
The G Kid said:
trickywoo said:
Last three years annualised return is just over 2% which is indeed pretty miserable.
Although last 2 years is a lot better at 10.8%pa, which whilst being better than the FTSE 100 (8.6% with divs re-invested) is a long way off MSCI World (in GBP terms) of over 19%. I prefer to use the 10 year return figure of 13.42%pa compared to 12.89% for £ MSCI World or 6.2% for the FTSE 100.
So you can use different terms to suit your argument depending on your belief!
Why do I keep seeing this rubbish?
Vanguard World has done well for 10-15 years, Vanguard World Ex USA has stayed almost flat, especially against inflation in USD.
And what has USD done for 10-15 years, and recently stopped?
QE and rate suppression.
And what is it doing? QT and not suppressing rates.
Between 2000 and 2013 ish, the big indexes and broad trackers went nowhere.
While everyone else is pumping out worthless myriad material using AI or just copy/pasting, here is my effort.
With more than 1 minute of effort I can probably get fund managers and risks of passive investment in a new paradigm QT environment in there too
Vanguard World has done well for 10-15 years, Vanguard World Ex USA has stayed almost flat, especially against inflation in USD.
And what has USD done for 10-15 years, and recently stopped?
QE and rate suppression.
And what is it doing? QT and not suppressing rates.
Between 2000 and 2013 ish, the big indexes and broad trackers went nowhere.
While everyone else is pumping out worthless myriad material using AI or just copy/pasting, here is my effort.
With more than 1 minute of effort I can probably get fund managers and risks of passive investment in a new paradigm QT environment in there too
Cherries on my Mind said:
Sunrise peeking through the trees,
A warm breeze whispers with the bees.
I grab my basket, head out the door,
Where the cherry orchard waits and begs for more.
Every branch a memory, ripe and sweet,
The laughter of summer, oh, it can't be beat.
I recall those days with you by my side,
In this cherry wonderland, love can't hide.
I like picking cherries, while wearing my rose-tinted glasses,
Sweet red memories in the sunlight that passes.
Every bite a reminder, of summer's sweet call,
Oh, picking cherries, I remember it all.
Your hands stained red, like a love that won’t fade,
We’d sip lemonade, while the sunshine played.
That old wooden swing, swaying side to side,
With cherries in our hearts, oh, what a ride.
The scent of the orchard, honey and bloom,
Each cherry I gather, still fills up the room.
I can hear your laughter, like music in the air,
As if those sweet moments were waiting right there.
I like picking cherries, while wearing my rose-tinted glasses,
Sweet red memories in the sunlight that passes.
Every bite a reminder, of summer's sweet call,
Oh, picking cherries, I remember it all.
Now the seasons change, but the taste lingers on,
The echoes of laughter, the love that we've drawn.
I’ll cherish these moments, let the memories unfold,
For in every cherry, our story is told.
I like picking cherries, while wearing my rose-tinted glasses,
Sweet red memories in the sunlight that passes.
Every bite a reminder, of summer's sweet call,
Oh, picking cherries, I remember it all.
So next time I wander, where the cherries grow,
I'll wear my rose-tinted glasses, let the memories flow.
With every sweet taste, in the sunshine's embrace,
I’ll keep picking cherries, forever in this place.
A warm breeze whispers with the bees.
I grab my basket, head out the door,
Where the cherry orchard waits and begs for more.
Every branch a memory, ripe and sweet,
The laughter of summer, oh, it can't be beat.
I recall those days with you by my side,
In this cherry wonderland, love can't hide.
I like picking cherries, while wearing my rose-tinted glasses,
Sweet red memories in the sunlight that passes.
Every bite a reminder, of summer's sweet call,
Oh, picking cherries, I remember it all.
Your hands stained red, like a love that won’t fade,
We’d sip lemonade, while the sunshine played.
That old wooden swing, swaying side to side,
With cherries in our hearts, oh, what a ride.
The scent of the orchard, honey and bloom,
Each cherry I gather, still fills up the room.
I can hear your laughter, like music in the air,
As if those sweet moments were waiting right there.
I like picking cherries, while wearing my rose-tinted glasses,
Sweet red memories in the sunlight that passes.
Every bite a reminder, of summer's sweet call,
Oh, picking cherries, I remember it all.
Now the seasons change, but the taste lingers on,
The echoes of laughter, the love that we've drawn.
I’ll cherish these moments, let the memories unfold,
For in every cherry, our story is told.
I like picking cherries, while wearing my rose-tinted glasses,
Sweet red memories in the sunlight that passes.
Every bite a reminder, of summer's sweet call,
Oh, picking cherries, I remember it all.
So next time I wander, where the cherries grow,
I'll wear my rose-tinted glasses, let the memories flow.
With every sweet taste, in the sunshine's embrace,
I’ll keep picking cherries, forever in this place.
greengreenwood7 said:
given the advancement of AI, it's hard to see how many would have an edge within 2-3-4 years.....
Do you think there is anything new that the top quant funds haven't been using for many, many years?The barriers to entry (in terms of data (quantity and quality), computing power and brainpower) to have a genuine edge are vast.
https://d3.harvard.edu/platform-digit/submission/r...
https://math.berkeley.edu/~berlek/pubs/bloomberg.p...
https://www.youtube.com/watch?v=hWX8V9KSZM8
Derek Chevalier said:
greengreenwood7 said:
given the advancement of AI, it's hard to see how many would have an edge within 2-3-4 years.....
Do you think there is anything new that the top quant funds haven't been using for many, many years?The barriers to entry (in terms of data (quantity and quality), computing power and brainpower) to have a genuine edge are vast.
https://d3.harvard.edu/platform-digit/submission/r...
https://math.berkeley.edu/~berlek/pubs/bloomberg.p...
https://www.youtube.com/watch?v=hWX8V9KSZM8
Passive all the way?
You’re Lars Kroijer AICMFP
Derek Chevalier said:
I'm not clear why you are comparing Fundsmith to the FTSE 100 or MSCI World. It's an apple to oranges comparison.
It's not quite as wide a comparison as you suggest, as I'm presuming a lot of passive UK retail investors would be looking at those indices as an alternative to Fundsmith? I'd suggest an apples to oranges comparison in this case would be Fundsmith to Twenty Four Income Fund.
If you fed a NN PM AI all the data for markets that you could muster, that AI would know everything about how markets react in an environment without its participation…
So mostly useless.
Thus decisions it could make would impact the probability and accuracy of its predictions.
You’d end up in a circular loop if you tried to train the AI to imagine it was participating with the information it gleans.
Eventually on the quantum level, it’s why we have the quantum uncertainty principle.
You can’t collect sufficient data to know a state because by collecting information you change the state.
That’s not to say it won’t be used, but it’s not going to find more money than exists.
So if there are no losers there won’t be winners.
Thus low volatility.
Then the risk taking begins again as people become aware of how crap markets really are without all the froth/exuberance that normally yields good “returns” at the cost of losers.
You won’t tame human greed/fear.
So mostly useless.
Thus decisions it could make would impact the probability and accuracy of its predictions.
You’d end up in a circular loop if you tried to train the AI to imagine it was participating with the information it gleans.
Eventually on the quantum level, it’s why we have the quantum uncertainty principle.
You can’t collect sufficient data to know a state because by collecting information you change the state.
That’s not to say it won’t be used, but it’s not going to find more money than exists.
So if there are no losers there won’t be winners.
Thus low volatility.
Then the risk taking begins again as people become aware of how crap markets really are without all the froth/exuberance that normally yields good “returns” at the cost of losers.
You won’t tame human greed/fear.
The G Kid said:
Derek Chevalier said:
I'm not clear why you are comparing Fundsmith to the FTSE 100 or MSCI World. It's an apple to oranges comparison.
It's not quite as wide a comparison as you suggest, as I'm presuming a lot of passive UK retail investors would be looking at those indices as an alternative to Fundsmith? I'd suggest an apples to oranges comparison in this case would be Fundsmith to Twenty Four Income Fund.
An index fund (typically) doesn't suffer common active fund manager (potential) risks, which include:
Concentration risk (both in terms of the number of shares held and the limited sectors they are exposed to)
Factor exposures (see how some star fund managers performed in 2022 vs their supposed benchmark)
Style drift risk: When the manager changes their investing approach and some investors are unaware until it's too late.
Mr Whippy said:
If you fed a NN PM AI all the data for markets that you could muster, that AI would know everything about how markets react in an environment without its participation…
This is why quant firms with a genuine edge tend to run closed shops with a limit to their fund size, and spend enormous amounts of money on minimising slippage. https://thealgorithmicadvantage.com/podcast/019-me...
No doubt related to the one-model framework, RenTec built the technology to execute trades flawlessly. Minimizing slippage by executing 150,000 to 300,000 trades per day to break up larger orders, studying the higher volume hours in which to execute, endless hours would have no doubt gone into making this one of the finest execution algos on the planet. They became, out of necessity, world class at hiding their trading footprint.
Mr Whippy said:
That’s not to say it won’t be used
What are you suggesting is new that hasn't been used for years already?Mr Whippy said:
You won’t tame human greed/fear.
Correct, and this is one of the ways these firms make mone. Humans repeat the same mistakes over and over, and these firms take advantage. Gassing Station | Finance | Top of Page | What's New | My Stuff