EVERY YEAR, I READ somewhere that it’s going to be a stock picker’s market. These stories suggest I need an active manager to nimbly skip down Wall Street, picking the daisies and avoiding the weeds.
Then the annual results roll in. That unmoving and unmanaged S&P 500 Index fund has somehow, unaccountably, beaten those deft active managers at their game.
The S&P 500’s return of 28.7% in 2021 beat 85% of actively managed large-cap U.S. stock funds, according to S&P Dow Jones Indices. The active set returned an asset-weighted average of 23.3%. That’s a great year, except in comparison with their relentless competition.
These results can hardly be called news. This is the 12th consecutive year that Jack Bogle’s invention has bested the majority of active large-cap fund managers. I’d imagine that most active managers are handsomely paid. But what are their investors thinking?
To be fair, some might be invested in those few funds whose managers do exhibit a magic touch, like the Windsor Fund when it was run by John Neff. It beat the S&P 500 handily over a 31-year run. Others could be sitting on significant profits, and don’t want to trigger capital gains taxes by selling.
But in large part, the allure of active management seems like a win for marketing. When considering the competition, Gus Sauter, onetime manager of Vanguard’s S&P 500 index fund, liked to quote Samuel Johnson on second marriages. Active management, he said, “is the triumph of hope over experience.”
Alternatively, active fund investors could borrow a phrase from the perennially disappointed Brooklyn Dodgers’ fans of the 1950s: “Wait till next year.” Because experts suggest that 2022 will be—you guessed it—a stock picker’s market once again.