likes to open client meetings this day with a version of the famous fish parable from the late US writer, David Foster Wallace.
In this environment, the choice for investors has been clear: shift money to passive investing strategies, and away from active managers like Almeida and MFS, andAlmeida says the impact of passive investing on markets has become even stronger as investors chase the mega tech companies that are dominating Wall Street’s benchmark indices. His clients, he says, “are sceptical, yet they’re afraid of continuing to not participate – that is, continuing to underperform.
Almeida is painfully aware that he risks sounding like a whiny active manager who can’t beat the index. Not only do passive investing strategies offer much lower fees – why pay for an active manager to limit your downside when central bankers will do it for you? – but their historical performance is starkly better, too.In 2023, 60 per cent of active managers in the US failed to beat their benchmark, according to data from S&P.
“I don’t have any doubt riding to the rescue is what central banks will want to do. What I doubt is the durability of them being able to do that,” he says. The difficulty for active managers is the scoreboard appears so definitive. Passive strategies haven’t just beaten active strategies for two years, but two decades.
Just look at the new S&P data released on Friday morning showing global corporate credit defaults are the second-highest on record or, as Almeida points out, the way gold has soared to record levels despite bond yields remaining high; is that a sign of the end of US hegemony?