Active vs. passive is passé

Reasons back passive investing:
1. financial collapse that fund managers never foresee;
2. reliable option under new regulatory requirements;
3. (This is the most important one) two out of three active managers again underperform the S&P 500 benchmark in 2015 (why am I saying again)


A New Perspective on the Active–Passive Investing


Recent trends:
1. Fidelity, long known for being an active manager,  recently announced it is cutting fees for 27 index mutual funds and exchange-traded funds to attract more assets into passive strategies.
2. Blackrock’s CEO said last month he expects consolidation in the asset management business because too many managers can’t generate returns higher than their benchmarks and that the shift to indexing will be “massive.”

You can’t criticize them for the move: Investors have spoken, and increasingly they favor passive funds over higher-cost active funds that aren’t providing the value they hoped for.

You also can’t criticize investors: in this persistently low-interest-rate environment,  too big a percentage of the investors’ returns is consumed by management fees.

(So, fxxking central bank!)



Up to 86 percent of active funds underperform their benchmark, but by definition 100 percent of truly passive funds underperform theirs!

In terms of benchmark comparison, It is a mathematical certainty that, after fees, more assets will underperform the benchmark than outperform!


Investors and regulators alike are overlooking a key point: Passive investing wouldn’t make anybody any money without active investing!

The media question the value of active management, but they never bother to acknowledge that without it passive investment wouldn’t exist!  (price discovery)

And active managers search for growth and value and to the proper purpose of the capital markets — to move capital to where the best risk-adjusted returns can be found.



Moral thing works nothing and low interest seems not to end shortly, therefore active management is doomed to continue to shrink unless active managers can discover a fee model that is more commensurate with the value they provide.

When comes the main reversion?

“According to Morningstar, assets under management in passive mutual funds have skyrocketed 320 percent globally to $6 trillion since 2007. The growth of actively managed funds meanwhile has slowed significantly, with a like-for-like growth rate of 54 percent and total assets of $24 trillion.”

Maybe it’s the time when it becomes a half-half…




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