Finding Winning Active Managers

I read an interesting article in the current issue of Morningstar's monthly magazine for advisors. The article compared the results of actively and passively managed mutual funds. The author asserts that a review of performance across all mutual funds does not support one approach over the other. He noted that there are more passive funds that produce performance around the overall average for comparable funds. (This is what we would expect.) Further active funds are more prone to performance both well below and well above the average for comparable funds.

I am a bit surprised that nowhere did the author mention the process involved in finding successful fund managers. It is well established that investors are not readily able to identify managers who beat their peers in advance. So, while there will certainly be managers who both underperform and outperform their peers, that is not the issue. Investors only benefit if they can identify these winning active managers beforehand.