Lake Wobegon & Fund Managers

According to a piece in today’s Financial Times, most fund managers are above average. Standard & Poor’s was cited in the piece as saying that in 2003 52.3 per cent of actively managed US equity funds outperformed the Standard & Poor’s SuperComposite 1500 index.

An S&P analyst parsed the implications about right:

“People who believe in active investing will say 2003 was a good year for growth, and this shows managers can add value by finding the right stocks. People on the passive management side will attribute the overall performance to chance.”

Put me on the side of the probabilistic sorts, believing, as I do, that this doesn’t newly prove that fund managers are like children from Lake Wobegon — all above average. And that is borne out by how tight the tussle was: on an asset-weighted basis, US stock funds barely outperformed the index, returning 30.6 per cent in 2003, compared with the 29.6 per cent rise in the S&P SuperComposite.