Go after the ones “active” managers won’t touch

At best, you would hope the consultant you hired to help pick out mutual funds had your specific investment goals and risk tolerances in mind. Or at worst, you would hope the consultant had something more in mind than a raging desire not to get fired.

But that's the delightfully cynical theory being floated by Bank of America Merrill Lynch strategist Savita Subramanian. In her assessment, the key motivation by consultants may be to justify their existence by making clients believe they are getting something for their money when they invest in an active fund with way higher fees than passive funds that simply track benchmark indexes.  

"Signs of reluctance to take career risk in the financial services industry are popping up everywhere," Subramanian wrote in a report. The fear-of-firing could be driven by the last financial crisis, she wrote, or the difficulty of picking individual stocks in a macro-driven world,  "or the convergence of headwinds facing active equity investors over the last few years." 

Much has been written about those headwinds facing active managers, who have watched investors pull money from their funds for nine straight years while piling into passive funds. Only 21 percent of active U.S. stock funds beat their benchmark last year, the worst rate on record at Morningstar. 

David Fuller's view

The first graph in Bloomberg’s article says it all in terms of investor preferences.