Here is a poignant excerpt describing why active management in the mutual funds business is no longer a game worth playing.
From a recent academic article called The Rise and Fall of Performance Investing:
"The ironic triumph of active performance investors, who are so capable of price discovery, is that they have reduced the opportunity to achieve superior price discovery so much that the money game of outperformance after fees is, for clients, no longer a game worth playing. The obvious central question for our profession—for each individual and each firm in active investment management—is, When will we recognize and accept that our collective skills at price discovery have increased so much that most of us can no longer expect to outperform the expert consensus by enough to cover costs and management fees and offer good risk-adjusted value to our clients? Another central question is, When will our clients decide that continuing to take all the risks and pay all the costs of striving to beat the market with so little success is no longer a good deal for them? These questions are crucial because to continue selling our services after passing that tipping point would clearly raise the kind of ethical questions that separate a proud profession from a crass commercial business."
Need more proof that outperformance via active management is an impossible goal? Check out the bar chart showing the random future performance of top quintile managers.