A fund manager once told me (correctly, I believe) that as a former economist he firmly believed that there must be a 'correct' equlibirium level between actively managed funds and automated tracking funds. Too many actively managed funds and opportunities for clever stock-pickers to justify their bonuses evaporate in an ultra-efficient market, too many tracker funds and there aren't enough intelligent traders looking at the business news to force share prices to their correct level.
For an investor, the important questions from all of this are, of course:
and
The answer offered in a recent editorial and survey in The Economist is pretty clear: there is currently too much money in managed funds. This is because fund managers have been rather good at selling them and their customers have been rather too willing to believe in the benefits of having their money actively managed.
These days it's much better instead to put your money in a tracker fund. (Unless eveyone else does the same thing of course; that would make actively managed funds relatively more attractive and turn the whole argument on its head... until everyone recognises this and goes back to active management... you get the idea.)
Looks like my acquaintance might have to go back to being an economist for a while.
Posted by timo at July 12, 2003 11:52 PM | TrackBack