From 1945 to 1964 mutual fund managers showed no systematic skill, underperforming index holding.

Evidence

Their most damning piece of evidence in this respect was an analysis by Michael Jensen of the performance of mutual funds from 1945 to 1964. … Diversification was indeed valuable, Jensen concluded, but there was no evidence that fund managers had systematic predictive skills. Even after the funds’ large sales commissions were removed from the analysis, investing in a mutual fund was typically less rewarding than simply buying and holding a “market portfolio” in the form of all the stocks in the Standard and Poor’s 500 index: “The evidence on mutual fund performance … indicates not only that these … mutual funds were on average not able to predict security prices well enough to outperform a buy-the-market-and-hold policy, but also that there is very little evidence that any individual fund was able to do significantly better than that which we expected from mere random chance.” — Donald MacKenzie, An Engine, Not a Camera, 346

Categorization

• XREF: This is the founding empirical evidence for passive indexing — connects to the efficient market hypothesis literature and the later growth of index funds.
• SEED: Possible angle: the empirical birth of passive investing — how one 1960s study of fund underperformance seeded the entire index fund industry.