The idea that indexes outperform open-ended funds is one of the more well-documented phenomena in financial history. It was first observed by the SEC in 1940 in a comprehensive study of the performance of open-ended and closed-ended investment companies. More recently, S&P Global issues an annual report on the results of open-ended mutual funds and institutional accounts over a trailing 10-year period. The results do not change much from year to year, and S&P has been doing it for 20 years. The large majority of active funds and active institutional accounts consistently and substantially underperform comparable indexes. The only thing more overwhelming than the evidence is the industry-wide denial of its legitimacy. There are exceptions to the rule, but investing is a game of odds, and the odds are clearly not in favor of picking active managers.

All of that said, I do agree that hedge funds are far worse than active managers if only because their fees are so egregiously high. Perhaps that should be a future post.