Monday, September 4, 2017

Stock Market: Who Needs A Fund Manager Anyway?

(Drivebycuriosity) - The global stock markets are climbing The S&P 500, the gauge of the US stock market, gained about 14% in the recent 12 months and is close to an all-time-high. Since spring 2009 the value of US stocks has more than tripled. Stocks in Europe & Emerging Markets are rising as well and those investors who venture in FANG stocks (Facebook, Amazon, Netflix & Google/alphabet) enjoy even much higher gains.

That´s bad news for fund managers - and all sorts of stock market professionals. Who needs a fund manager when stock markets are climbing years and years?

No wonder, that many professionals hate the rally. Many fund managers and other pundits call the end of the rally on CNBC, Bloomberg, Marketwatch, Reuters and other media. These professionals are scared and furious because their customers are running away. People are skipping managed funds. Instead they are buying index funds (funds which follow strictly an stock index like the S&P 500) and ETFs (Exchange Traded Funds) which do the same. "ETFs are eating the US stock market" comments the Financial Times  ( if this link doesn´t work try to copy it into google search).

                                                        Missing The Mark

The run into index funds has another reason: The majority of managed funds has been underperforming the stock market for many years.  "The S&P 500 outperformed more than 92% of large-cap funds over the last 15 years", reports the Fortune Magazine ( fortune). "More than 90 percent missing benchmarks over a 15-year period", writes CNBC (cnbc).

The continuous underperformance is not surprising. Many fund managers are clueless and are just gambling with the money of their clients. When stocks fall, they get pessimistic and they sell. They are buying the shares back when stock prices rise again. So they often they sell cheap and buy dear. The transactions (selling & buying of stocks) add to the other costs of the fund (salaries of the fund managers, research, administration, lawyers, marketing and more). All these costs are paid with the money/portfolio of the clients and deteriorate the performance of the fund.

Every Joe Sixpack who buys an ETF on the S&P 500 can participate in stock market gains and can beat the fund managers. Enjoy!

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