hiriskpaul wrote:t. This may change with the rise of smart-beta indexes, which by definition do not track the whole market. So in future active managers may in aggregate be able to outperform if the smart-beta sector becomes a significant size and in aggregate underperforms the market
That does not follow. An SB fund can hold all of the market, but with different weights. At some times they might track the market, do better or worse.
A fund with a bias to value, perhaps like Woody, might be expected to underperform a market that is over-enthusiastic, as he did in the dot.com boom, only to outperform in the subsequent crash. However, his recent returns are altogether different as they are generated by negative alpha - stock picking, rather than an a systematic bias.
Since we have not had a bear market for 8 years SB has yet to be tested in all conditions.