Mutual Fund Efficiency

In a nod to market efficiency, 2014 was one of the worst years on record for mutual fund managers, with fewer than 20 percent beating their benchmark. In the article, several reasons are given for the poor performance. For example, relative, not absolute skill is what matters. In other words, if fund managers as a whole are getting smarter, it is harder for an individual fund manager to distinguish themselves from the pack. Additional explanations, such as the necessity of small caps doing better than large caps, cash not being a drag on the fund return, and good performance of international stocks, are given as possible explanations for the poor performance in 2014. While we see merit in these explanations, a simpler reason also emerges. In very few years do mutual fund managers as a whole outperform the market. This leads us to the argument that the market is efficient and the reasons given in the article are only reasons that mutual fund managers performed even more poorly than usual.