Active managers’ latest excuse – CBS News

(MoneyWatch) Active fund managers are always coming up with excuses for why they can’t beat index funds. In recent years, their excuse was that increased correlations (a measure of the strength of the linear relationship between two variables) of stocks made it difficult to outperform. Just like their other excuses, this one holds up to scrutiny about as well a sieve holds water.

Correlation shows the directional movement of stocks, not the magnitude of their movement. Magnitude is shown by the dispersion of returns, or the size of differences in the returns of individual stocks/asset classes. The greater the dispersion, the greater the opportunity for active management to add value by overweighting the winners and avoiding the losers.

via Active managers’ latest excuse – CBS News.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s