Towards the end of the film “No Country for Old Men”, Sheriff Ed Tom Bell played by Tommy Lee Jones, goes to visit his wheelchair bound cousin, Ellis, played by Barry Corbin. Ellis informs Sheriff Bell he’s been recently corresponding with his wife by letter.
“Loretta tells me you’re quittin’. How come’re you doin’ that?
“I don’t know. I feel overmatched.” Replies Sheriff Bell.
Sheriff Bell is despondent. He’s seen the aftermath of a violent chase across Texas for a stolen $2 million and believes things have changed for the worse. Customs, beliefs, and behaviours of people aren’t what they once were. He’s struggling to accept the things he’s now seeing as a Sheriff, and he’s had no influence on anything. It’s 1980 and Bell’s a man pushing 60, so his elders were around at the end of the old west. He thinks that was a simpler and more upstanding time.
His cousin Ellis, in a wheelchair from his own brush with violence in the line of duty, recounts a story of their Uncle Mac who was killed on his front porch by Native Americans in 1909. Bell wants to believe things are getting harder and more wanton, but Ellis reminds him, “this country is hard on people. You can’t stop what’s comin’.” As one man in a rough country, Sheriff Bell was always overmatched.
Some recent news from the financial world has a similar inevitability to it.
The amount of assets managed by passive funds have overtaken those overseen by active funds, according to data from BofA Global Research. Only 47% of assets under management in the U.S. are now overseen by active funds, down from 80% in 2009, the data shows.
Bank of America’s research was backed up by similar findings from Morningstar.
After steadily encroaching on active funds’ turf for years, passive funds closed 2023 with more assets. While U.S. equity flows have long favored passive products, international-equity and bond-fund flows have followed suit, helping to get passive funds over the hump.
Such news has been forecast for several years now. In this case, the active managers might argue things have changed, and changed for the worse. In the past, some of them have called index funds lazy, communist, and even evil. Frustrated as they raged against more and more money flowing to passive strategies at their expense. But have things changed? Not really.
The stock pickers were always overmatched. They were up against a more powerful opponent: the market. It was always hard to beat the market. There was just less awareness of it, and for many years the actives were the only game in town. It took some time before awareness and the mindset changed, and there were far fewer passive options for investors or their advisers to direct their money.
The active managers regularly claim things will turn and money will swing back their way. Their regular line is “this year you’ll need to be selective”. As evidenced by Bank of America’s Jill Carey Hall continuing to push the active over passive argument.
The flow from active to passive funds may be now at a tipping point, Carey Hall said. There has been a slowdown recently in the outflow of funds from active funds to passive funds, BofA’s data shows. Carey Hall also said her team expects a pickup in volatility this year, which is good for stock picking.
Whatever the active managers say in the media is now overwhelmed by a general awareness that didn’t previously exist. Today, if the average person wants to start investing, they often go to the internet and ask the crowd some questions. Collective wisdom ensures they’re directed straight to a couple of low-cost index funds. There might be some obvious issues here with optimal portfolio construction, but the point is the crowd never directs someone to a high fee actively managed fund.
Someone pointed us towards a recent presentation by Platinum Asset Management which highlighted why the crowd never pushes someone in that direction. Once a darling of the Australian investment landscape, Platinum has been struggling with performance at its flagship Platinum International Fund for some time. In 2023 it returned 4.21%, while its benchmark MSCI World ex Australia net, returned 23.23%.
While Platinum’s International Fund has dominated the index since its inception in April 1995 (11.19% vs 7.61% pa, end January 2024), this is due to its blistering performance in its first ten years. It’s now been struggling for many years. Over the past 3, 5, 10, 15 and 20-year periods it’s lagged the index by decent margins. The genius behind those fantastic early returns, founder and former CEO and CIO, Kerr Neilson is regarded as one of Australia’s best ever investors, but he’s been winding down for some time. Neilson stepped down as CIO in 2013, CEO in 2018, and retired as a non-executive director in 2022. It seems the magic is gone.
What’s not gone are the hefty fees. Investors in Platinum’s International Fund have two fee options. 1.35% or 1.10% plus 15% of outperformance over the benchmark. The latter seems the better option, given the lack of outperformance. Platinum has people to pay, as was noted in their presentation they have 34 analysts working on achieving the best possible returns. Being a listed company, Platinum also have shareholders to please, and lately they’re not pleased.
Platinum’s share price is down -45% over the last year and -81% over the past 5 years. Poor performance means money walks out the door. End 2021 Platinum had $22 billion under management, end 2022 it was $18.1 billion, end 2023 it was $15.4 billion. As some smart aleck, assessing the most recent numbers said, “at this rate it will be a funds management business without funds to manage”.
During their conversation, Sheriff Bell asks Cousin Ellis if he knows the man who shot him died in prison? Ellis confirms he does, so Sheriff Bell probes what Ellis would have done if the man was released.
“Oh, I dunno. Nothing. Wouldn’t be no point in it.”
“I’m kindly surprised to hear you say that.”
“Well all the time ya spend trying to get back what’s been took from ya, more is going out the door.”
It was a sentiment recently shared online by a former investor in Platinum’s funds. They gave up on believing things would improve with more time and they’d recoup something by hanging around longer.
“Finally bucked the trend as a sticky retail investor – and sold out of all platinum funds held… Have held for about 6 years – thought that was a fair period to see if they could ever do their job. The answer = a resounding no. To any newbie investors who may be reading these forums – just invest in a low cost ETF. I wish I did, instead of listening to false prophets (fund managers) and misinformed “experts”. Despite their high esteem of their own ability – they can’t beat the market over the long term.”
Stock pickers will never go away, but these trends ensure there’s going to be a lot less of them in the future.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.
