Less Efficient Markets = Higher Alpha?

Stock picking is challenging everywhere

October 2021. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Emerging market mutual fund managers struggle to outperform
  • EM hedge fund managers failed to generate meaningful alpha
  • EM opportunities seem to come with proportional risks


Students often ask me for career advice. It is not a particularly satisfying experience. On the one hand, these are often exceptionally bright and hard-working people, with Oxford or Cambridge PhDs in chemical engineering, astrophysics, or some other challenging discipline. I wish they would stick to science and create something meaningful for our civilization rather than try to generate a few excess basis points per annum.

On the other hand, some students decided early on to pursue careers in finance and studied accordingly. Telling them to build better fertilizers or rocket ships makes little sense. But finance career advice is getting harder and harder to provide. Why?

Because global capital markets are already highly efficient and each day machines are grabbing more and more market share from humans. The career prospects for someone with a master’s degree in finance and some basic Excel skills are steadily diminishing.

Naturally, it depends on the role. Most students dream of becoming fund managers and managing money. Exchange-traded funds (ETFs) have become their key competitors. So if fund manager is the career aspiration, then maybe focusing on less efficient markets, either private or equity niches, is the savvy career advice.

After all, fund managers should theoretically be able to extract more alpha from such markets. Of course, in the investment world, reality often deviates substantially from theory. So how have fund managers performed in less efficient stock markets? (try Finominal’s Alpha Analyzer for alpha and contribution analysis)


To answer that, we first investigated fund managers’ ability to create alpha in the US equity markets. S&P’s SPIVA Scorecards offer great insight into the performance of mutual fund managers.

They paint a rather depressing picture: 82% of US large-cap mutual fund managers failed to beat their benchmark over the 10 yea