This gets into another issue, one of behavior, since investors tend to get bored and restless, especially when their holdings lag. Having decided to invest based on a quasi-active strategy, they tend to use underperformance as an excuse to sell current holdings in search of higher returns. Almost always, that is when they make decisions they later regret.Looking at fund flows during the past decade, we can see how the marketplace is voting. High-cost, actively managed funds have seen trillions of dollars in outflows headed toward low-cost, passively indexed funds. Some of this money has moved toward factor-based investing, and some toward fundamental indexing. I have my preferences, but each is an improvement over paying up for market-beating alpha that never seems to arrive.
This column was provided by Bloomberg News.