When Active Management Matters - Good article

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Aug 11, 2010 10:03 am

Really good article on active vs. passive debate.

http://advisorperspectives.com/newsletters10/When_Active_Management_Matters.php

Aug 11, 2010 2:52 pm

There are just so many dogs in the active space it drags down the cumalitive returns of all of them.  Good read.

Aug 11, 2010 2:52 pm

There are just so many dogs in the active space it drags down the cumalitive returns of all of them.  Good read.

Aug 11, 2010 3:56 pm

I think the bottom line was, there is a BIG difference between comparing (for example) a large-cap domestic equity fund to the S&P 500, and comparing a fund like Blackrock Global or First Eagle Global or IVY Asset Strategy to any particular index.  When all of those "active vs. passive" comparisons are made, they ONLY use index-specific/style-specific funds in their comparisons.  In other words, they completely discount the funds that are more allocation/go-anywhere-type funds as if they do not even exist. 

I generally agree, it is very tough for style-specific funds to beat their RELEVANT indexes.  Not many do it.  But when you begin looking at funds that have a lot of latitude in the assets and strategies they employ, the comparison of active vs. passive gets fuzzy.

Also, how do you categorize an advisor/investor that employs passive investments but manages their allocations actively?  Is that active or passive?

Aug 11, 2010 4:05 pm

Diversified.

Aug 11, 2010 7:50 pm

Know how I know a smart active manager can consistently beat the market?  Because individual investors have been proven to consistently underperform the market.  So it's not all random! 

Now if only I knew how to identify smart active managers.

Personally, I mostly use ETF and funds in a contrarian fashion and this has worked pretty well over the last couple of years.  Not blowout well and not for long enough to make a big deal of it, but well enough to keep at it for a while.

Aug 11, 2010 7:58 pm

Me too. Like you say, well enough to keep at it.

Aug 17, 2010 11:08 am

A lot of what I have been seeing lately on this topic points to the fact that even passive funds need to be actively managed (the asset allocation that is).  I think this is where Boogerheads fall short.  They think "index" investing is "set it and forget it".

Aug 17, 2010 10:58 pm

[quote=B24]

I think the bottom line was, there is a BIG difference between comparing (for example) a large-cap domestic equity fund to the S&P 500, and comparing a fund like Blackrock Global or First Eagle Global or IVY Asset Strategy to any particular index.  When all of those "active vs. passive" comparisons are made, they ONLY use index-specific/style-specific funds in their comparisons.  In other words, they completely discount the funds that are more allocation/go-anywhere-type funds as if they do not even exist. 

I generally agree, it is very tough for style-specific funds to beat their RELEVANT indexes.  Not many do it.  But when you begin looking at funds that have a lot of latitude in the assets and strategies they employ, the comparison of active vs. passive gets fuzzy.

Also, how do you categorize an advisor/investor that employs passive investments but manages their allocations actively?  Is that active or passive?

[/quote]

Active, this is what my practice is about. Using index funds (ETF's) but actively in or out of the fund.