Right, so the thing about “alpha” is that it’s really fucking hard to generate when benchmarks only go up.
Throw in the rampant proliferation of retail-friendly vehicles that track those benchmarks at a cost of just a few basis points in fees and you’ve got a veritable nightmare scenario for coke-sniffing, Perrier-Jouët-chugging, “2 and 20”-charging, Hamptons dwellers and also for active management more generally (more on hedge funds, passive-to-active shift, coke, hookers, Xanax, and champagne here and here).
As the following hilarious chart from Goldman makes abundantly clear, central banks killed active management by ensuring that anyone with an online brokerage account can rack up impressive returns by simply buying a benchmark and watching it rise with the global liquidity tsunami.
(Goldman)
Well if alpha is dead (or at least “dying”), then that means stock picking is too. Because again, picking individual stocks in an environment where easily replicable benchmarks are manipulated higher by central banks presents an asymmetric risk-reward scenario unless you know something everyone else doesn’t (i.e. unless you are trading on inside information or are similarly “not uncertain”).
Be that as it may, BofAML’s “Chart Of The Week” shows that for the first time since February, the bank’s clients are picking stocks again:
Of course more than anything, that chart simply underscores the extent to which investing has become synonymous with “passive” and “ETF.”
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