The title is from an interview between Susan Dziubinski and Ben Johnson of Morningstar.
“The other all-important sort, too, that is important to understand is the fee sort. What we see is that almost uniformly less costly funds have higher chances of surviving and outperforming their indexed peers. The arithmetic of active management, as Bill Sharpe has described it, is absolutely ruthless, and it shines through in this data. So, if investors want to improve their odds of partnering with winning active managers, it’s important that they pick their spots and keep a close eye on their costs.”
Think about this point. If you employ a wealth manager that picks active funds, which means you are paying them to ‘pick their spots’ and ‘keep a close eye on costs’, you are simply hitting another headwind against fees which you can’t win. If you want to win, you’ll need to do more yourself. If you are not prepared to do more yourself, consider ditching active funds.
If you choose to employ a wealth manager running active funds, the chances of you outperforming over time are slim.
The message is simple, if you wish to delegate to wealth managers, don’t let them take any of the alpha in fees. Alpha should belong to you, not them! If you don’t know if your investments are managed actively or not, use our Investment Audit.