Kevin Duffy on active investing

2022 was the year for active investing to shine.  Quantifying the opportunity set for active managers is difficult, but one attempt is to compare the Equal-weighted S&P 500 (RSP) to the Float-weighted S&P 500 (SPY).  Last year, RSP outperformed SPY by 6.56% after a long stretch of underperformance. 

Retail investors are convinced a change is not at hand.  In fact, they poured $278 billion into passive U.S. equity funds last year, pulling $232 billion from active U.S. equity funds.  Over the past five years, over $1 trillion has been yanked from active U.S. equity managers and placed in low-cost index funds.  (Passive now accounts for 58% of assets in the category.)  In other words, the index pond is overrun with fishermen and largely depleted.  Across the index divide, multiple lakes and streams are full of fish, but practically empty.

~ Kevin Duffy, The Coffee Can Portfolio, pp. 18-19, January 24, 2023