Oaktree Capital co-founder Howard Marks didn’t mince words about the trillion-dollar rise of index funds, attributing the dominance of passive investing not to its inherent brilliance, but to the historic underperformance of active stock pickers.
The Fee Myth And Active Failures
In a recent interview with Nikhil Kamath, the billionaire distressed debt investor broke down the industry’s massive shift toward passive vehicles like the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 and Nasdaq 100, respectively.
While many industry observers point to the low expense ratios of index funds as the primary catalyst for their popularity, Marks argued that the root cause was much simpler: poor performance by Wall Street professionals.
“My answer is that indexation has taken over as it has, not because it’s so good, but because active management was so bad,” Marks stated.
He recalled his time in graduate school in the late 1960s, noting that professors were already teaching that most mutual funds underperformed benchmark indices while charging exorbitant fees. However, Marks stressed that fees are only a secondary …
This post was originally published here
