Active funds earn keep, barely, in bear markets
More evidence that active managers produce alpha during market downturns
Active fund managers' skill in timing bear markets may be enough to balance their costs and other shortcomings.
That's the upshot of a new paper, but before you get too excited, the implication may simply be for investors to be more or less indifferent to the active versus passive debate.
Unless, of course, you think you can predict bear markets, in which case you are likely already an active investor, as well as being a seer.
Numerous studies have indicated that active managers produce worse returns than passive benchmarks. A new study from Spencer Martin of the University of Melbourne and George Wang of Manchester University computes an option-based valuation of active managers' timing skill during bear markets added to security selection value. This adds to evidence from earlier studies that active managers outperform, or produce alpha, during market downturns.
“We find the option-adjusted alpha is statistically indistinguishable from zero. This finding suggests that the benefit of the service provided by fund managers may actually fall in line with its cost.”