AI, Valuations, and the Future of Active Investing

The active management industry is in crisis, but the right strategies and disciplined managers can still beat the market over time. Bill Miller IV comments on our recent MVP LIVE.

Summary points:

Active Management Faces a Historic Challenge

Only 22% of active managers have outperformed their benchmarks year-to-date through Q3—a potential two-decade low if year-end results hold.¹
High fees and competition with passive strategies make consistent outperformance difficult in aggregate.

Why Active Management Still Matters

Some managers with differentiated strategies can outperform over the long term, despite short-term volatility.
Success often depends on concentrated portfolios, unique investment processes, and conviction outside the benchmark.

Constraints and Risk Limits Can Hurt Performance

Limits (i.e., sector caps, position restrictions) reduce the ability to take meaningful active positions.
Managers prioritizing short-term benchmark proximity may sacrifice long-term alpha.

The Dangers of Chasing Hot Trends

Many active managers chase momentum investments, like AI, which have produced record short-term returns.
Historical trends show that speculative bubbles eventually correct, emphasizing the need for a disciplined approach and long-term investing.

Innovation Cycles Require Patience

Breakthrough technologies (railroads, internet) often follow boom-and-bust patterns.
Investors benefit when managers focus on long-term potential rather than hype-driven opportunities.

Differentiated Strategies Drive Results

Active managers who avoid benchmark hugging may be better positioned to generate alpha over time.

Patience Is Key for Investors

Top-performing managers often experience extended periods of underperformance.
Many investors undercut their returns by buying after gains and selling after losses.

Stick With Conviction

Identify managers whose thought process and strategy align with your investment philosophy.
Add to positions during down periods and trim when performance is ahead—resisting the urge to chase short-term trends.

Comments dated 10/9/2025.

Miller Value Partners, LLC (“MVP”) is a registered investment adviser. More information is available at https://adviserinfo.sec.gov/firm/summary/110632

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