Cheetah Advisors Limited

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Updated 5/10/99

The 5 years from 1994 to 1998, the majority of the actively managed mutual funds in the US has in fact failed to beat the S&P 500 Index. In 1998, nine out of ten fund managers couldn't match this index. According to the proponents of the efficient market theory, this can easily be explained by the fact that the US equity market is so efficient the value added by employing a mutual fund manager is more than offset by the fee one needs to pay the manager for his effort. Thus most managers underperform the market. This view is held by none less than the Nobel Prize winner Professor Merton Miller. So can it be true that no one can beat the market consistently and in fact "add value" to the investment process?

Marty Gruber at NYU Stern School turned up evidence in persistent above-average fund return. So did another Nobel Prize winner Professor Bill Sharpe. Though Gruber and Sharpe both showed that whatever it is that makes a fund successful has a relatively short half-life. Never-the-less, Professor Sharpe acknowledges some Pension Funds do manage to find and hire managers who beat the indices more often than not.