Active fund management has been losing followers but isn’t going away entirely, writes Barry Ritholtz in a recent Bloomberg article. While stock-picking has seen a host of changes, he offers several insights as to “how we got here” including the following:

• Beating the market is tougher than most people thought, a notion that Ritholtz says has become “widely accepted among both professional investors and individuals.”
• We have a much greater understanding of investor psychology, and this “makes the case for low-cost index investing even more compelling.”
• Quantitative studies, writes Ritholtz, suggest that much of active investing performance is attributable to factor-based strategies (picking stocks based on things like market cap, profitability, value, etc.), but index investing offers a cheaper way for investors to access these strategies.

Ritholtz also argues that active investing had “simply become way too large to sustain itself. There have been to many active equity funds to be “viable.” He adds a comment by Vanguard Chairman and Chief Executive Officer William McNabb that the industry’s sharp increase in chartered financial analysts (CFAs) may have created an “increasingly crowded space of professionals all trying to beat the market.”

While the number of active managers is shrinking, however, Ritholtz believes that the survivors will have a better chance of beating their benchmarks. “So,” he concludes, “the death notices for active management are likely overhyped and surely premature.”