Ever wonder why most fund managers can’t beat the S&P 500?

Companies and brokers who are losing their cash cow as investors are increasingly moving to passive index funds are claiming that increasing dispersion within equity markets makes actively managed portfolios a better deal again. But even in more theoretically favorable conditions, the vast majority of fund managers can’t beat the S&P 500, let alone by enough to justify the higher fees:

Investment pros say AI disruption has created a stock picker’s market. They are still struggling to pick the right ones. 

Just 27% of actively managed U.S. large-cap equity funds beat their benchmark passive-fund alternatives in the 12 months ended June 30, according to Morningstar data that compares returns after fees. That is actually an improvement over stock-picking funds’ long-term track record. In the decade through June, just 13% of active large-cap funds beat their benchmarks. 

The fees on actively managed mutual funds have been a cash cow for investment firms for decades, but years of outflows from investors moving to more tax-efficient, and often passive, exchange-traded funds are weighing heavily on the industry.

“If you look at active equity mutual funds, they’ve had outflows every year consistently since 2015,” said Matthew Bartolini, head of SPDR Americas research at State Street Global Advisors. “That’s a losing trend only compared to the New York Jets.”

If you’re lucky enough to be able to put some money away, at a minimum the [Albert Brooks voice] core of your next egg should be in a reputable index fund. If you have some additional money you can afford to lose and either want to pick stocks yourself or delegate to a broker, well,…I like making the occasional wager myself, but remember that in relative terms the house is going to win most of the time.