Originally Posted by
Muse
There will most likely be some active funds / hedge funds what have you that beat the benchmark but the question is are they comparing the right benchmark and over what time period. It would be easy to pick and choose and put one's performance in a favourable light. And even then, say, they have outperformed a broadly acceptable index and over a consistent period, how does luck factor into it, particularly w/ respect to future returns.
Not a perfect example but one that stuck with me from school.
Imagine a thousand people compete in a coin flipping contest to see who can get heads consistently the most.
After the first flip, ~500 people would be out.
By the fifth flip, statistically 97% people would be out and 3.13% (50%^5) would have flipped heads 5 times in a row. So a lucky 31 people who appear to be masters in their trade, outperforming the lesser 969 mere mortals. People flock around them to see what it was they did to make it happen. Was it the custom suit they wore, the way they polished their nails before flipping, the good luck charm they wore around their neck, or the way they flicked their thumb that made it so.
5 more flips later - getting to 10 flips in a row - only one person stands tall - flipping 10 heads in a row (50%^10 x 1000). All 999 fell by the wayside. The champion is crowned and all are in awe. Go on - flip one more for good fun - you just did 10 in a row surely the odds are a banger for another heads. After all, they've beaten the odds, and over a long period of time. But in reality the chance of flipping another heads is just 50%.
Point being there are thousands of active mutual funds, hedge funds, and so on globally, and each probably managing a handful or two of products - so a huge number of products, and statistically a good chance at least some will have outperformed the index. But is that just luck or skill? Hard to know, IMO.