Active fund managers rarely beat stock-market indices once costs are counted

Evidence

Both Michael Jensen’s work and the findings of performance measurement firms such as Becker (Ehrbar 1976) suggested that active, stockpicking investment managers did not outperform stock-market indices systematically. Indeed, once such managers’ high costs were taken into account they typically did worse than those indices. … So why not turn Jensen’s comparator buying and holding every stock in an index into an investment strategy? If conventional investment analysis had to be “throw[n] away” (McQuown interview) because markets were efficient, then why not simply invest in a portfolio that encompassed the market, for example by including every stock in the S&P 500 index in proportion to its market value? — Donald MacKenzie, An Engine, Not a Camera, 373

Categorization

• DEFINE: The passage explains how the efficient markets hypothesis, taken literally as an investment strategy, licenses the index fund — usefulness as a definition of the performative chain from theory to practice.
• XREF: connects to: Managers benchmarked to an index converge on closet indexing to avoid career risk — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 381; Active stock pickers treated index funds as an un-American threat to their profession — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 379

Broader Connections

• Managers benchmarked to an index converge on closet indexing to avoid career risk #corroborates (0.85) — Donald MacKenzie, An Engine, Not a Camera, 381