FOUR POINTS ADVISORS

Performance of fund managers compared to the overall stock market has shown mixed results. While some fund managers may outperform the stock market over short-term periods or in specific market conditions, evidence suggests that, on average, most fund managers do not consistently outperform the stock market over long periods of time.

Numerous studies, including those conducted by renowned organizations such as S&P Dow Jones Indices and Morningstar, have shown that a majority of actively managed mutual funds underperform their respective benchmark indices, such as the S&P 500, over longer time horizons. This is commonly referred to as the "active vs. passive" debate, where active management refers to fund managers who attempt to outperform the market by actively selecting and managing individual stocks or other securities, while passive management involves investing in low-cost index funds or exchange-traded funds (ETFs) that track a market index.

There are several reasons why many fund managers may struggle to consistently outperform the stock market over long periods of time, including:

1. Higher fees: Actively managed funds typically charge higher fees compared to passive index funds, which can eat into returns and make it more challenging for fund managers to outperform the market after accounting for fees.

2. Difficulty in stock selection: Beating the market requires making accurate stock picks consistently, which is challenging even for experienced fund managers. The stock market is highly competitive, and there is a wealth of information available, making it difficult to consistently identify mispriced securities or outperform other market participants.

3. Market inefficiencies: While some market inefficiencies may exist and offer opportunities for skilled fund managers to generate alpha (excess returns above the market), these inefficiencies are often short-lived and can be difficult to exploit consistently over time.

4. Randomness and luck: The performance of fund managers can also be influenced by randomness and luck, which can result in short-term outperformance but may not be sustainable over the long term.

Sources:

1. S&P Dow Jones Indices: According to the SPIVA (S&P Indices Versus Active) Scorecard, a report published by S&P Dow Jones Indices, the majority of actively managed U.S. equity funds underperformed their respective benchmark indices over long-term periods. For example, the SPIVA U.S. Year-End 2020 Scorecard reported that over a 10-year period, 85% of large-cap fund managers, 89% of mid-cap fund managers, and 94% of small-cap fund managers failed to outperform their respective benchmark indices. (Source: SPIVA U.S. Year-End 2020 Scorecard)

2. Morningstar: Morningstar, a leading provider of investment research and data, has conducted research on the performance of actively managed funds. According to their "Active vs. Passive" research, as of December 2020, the majority of actively managed U.S. equity funds underperformed their respective Morningstar category averages over longer time horizons. For example, over a 10-year period, 63% of large-cap funds, 60% of mid-cap funds, and 55% of small-cap funds failed to outperform their respective category averages. (Source: "Mind the Gap 2020: Active vs. Passive" - Morningstar)

3. Academic Studies: Numerous academic studies have also found that, on average, most fund managers do not consistently outperform the market over long periods of time. For example, a study published in the Journal of Finance in 2010 titled "Luck versus Skill in the Cross-Section of Mutual Fund Returns" by Eugene F. Fama and Kenneth R. French found that after accounting for fees, most mutual fund managers did not possess enough skill to overcome the costs of active management and generate excess returns. (Source: "Luck versus Skill in the Cross-Section of Mutual Fund Returns" - Journal of Finance)