Check out Michael Mauboussin's latest writing at Credit Suisse. He talks about skill in investment management and the trade-off between active and passive management.
- "Investors are moving from actively-managed funds to index funds and exchange-traded funds at a rapid rate.
- We can measure the cost of being informed and the benefit of excess return to see if they are in rough balance.
- Gross profit, the risk-adjusted return of the fund before fees minus the benchmark return times assets under management, better reflects skill than simple measures of return do."
Well, this gross profit yield has been in decline recently. Active managers are having a hard time justifying their fees.