Alexey, for sure investors do have such an irrationally short horizon of 1-2 years for their long-term investments. Thus, they may easily get trapped by presuming that changes in investment results during purely upward or downward market phases vs. results of complete market cycles, caused by simple math, are due to changes in actual manager performance.

Referring to your two statements:
““Large-blend active managers have outperformed the S&P 500 in only 5 of the 29 years analyzed. On average, active managers underperformed by –1.7% per calendar year.”
“The results are even worse for the most recent decade. Since 2010, active managers have failed to keep pace with the S&P 500 every year, lagging by –2.1% a year on average.”
These “worse” results are also due to simple math, imho. As this is an educational blog for investment professionals, I just thought it may be relevant for them to know that the actual reason behind these “worse” results is not that their performance is actually becoming worse overall.

These “worse” results can simply be explained by the fact, that during this recent decade we are only in a rather long upward market phase. During such phases, active managers mostly lag their correct index significantly. This is shown in the figure “Actively Managed Large-Blend Mutual Funds vs. the S&P 500” for “Calendar Year Periods 1990-2018” with approximately three complete market cycles.

Thus, over several complete market cycles results of active managers must be “better” than over just one upward market phase since 2010. Simply because they also include a number of downward market phases, corresponding to the number of upward market phases. During downward market phases, active managers usually achieve “better” results vs. their benchmark, thus, partly compensating their usually “worse” performance during upward market phases.

Your further comments to Tony, including the dependency of a quantitative performance breakdown of active managers on exposing their convictions to the market forces and on fees and costs, are very valuable! They help to explain the higher probability of HF managers, particularly CTAs, to achieve outperformance over complete market cycles. Because they operate at a much lower ratio of fees and costs to their market exposure.