Richard-

Thanks for you comment.

Most stock picking mutual fund research focuses on confirming the existence of skill (see my paper "Collective Intelligence Market Model" on SSRN for a summary of this research).

A couple of studies estimate the % of managers with skill sufficient to cover expenses. Berk and Green (2004) estimate 80% of active equity mutual fund managers display such skill, while in my paper "Why Most Equity Mutual Funds Underperform and How to Identify those that Outperform" in Advisor Perspectives (Jan 2016) I come up with the same estimate. There seems to be an ample number of managers with the requisite skill.

It is straightforward to identify funds having the best chance of outperforming going forward. They are the ones that do not saddle their funds with portfolio drag, the result of asset bloat, benchmark tracking, and overdiversification.

These three decisions are the forerunners of closet indexing and, unfortunately, a large segment of the industry is tooled as an closet indexing factory.

Our series is an attempt to deal with this issue head on.