Excess Returns, Episode 2: The Rising Bar for Active Management

The market has always been tough to beat, but the ability to investors to gain inexpensive exposure to factors like value and momentum has made the job of active managers even harder. In this week’s episode, we talk about why the pursuit of alpha has become more difficult over time.

We discuss:

  • Why cheap ETFs that capture factor premiums have commoditized sources of return that used to be considered alpha
  • How to judge the past returns of legendary investors using factors
  • Why the gross returns of all active managers must sum to the market’s return

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Included below are our show notes, which are links off to articles and sources discussed during the podcast:

The Rising Bar for Active Management, Jack’s article

Active vs. Passive, S&P Scorecard

Long term evidence behind factor investing

AQR “Superstar Investors”

Investors Twitter Thread on Alpha

Bill Sharpe’s “The Arithmetic of Active Management