Indexing Beats Smart-Beta Track Record

Many smart-beta funds– which develop portfolios focusing on various factors such as low volatility, value, or momentum– have underperformed the market, especially after accounting for fees and expenses. This according to a recent MarketWatch article which concludes, “Tally another point in the pro-indexing column.” While the article points out that the rate of outperformance depends on the time frame analyzed, it says that “broadly, only 30% to 40% of smart beta exchange-traded funds beat their… Read More

Warning to Index Fund Investors

The more investors index, the higher the costs for those that don’t, according to a recent MarketWatch article. The benefit of indexing–lower costs and higher long-term returns—only exists, the article argues, if there is an “active, functioning market underlying whatever index a fund is trying to capture the performance of.” The problem arises, it asserts, in that the market can’t exist without active investments born of research and analysis that serve to set prices on individual… Read More

Study Finds that Stock Picking Probably Won’t Make Investors Rich

While some stock pickers can successful, investors should keep in mind that the odds are against them, according to a recent article inThe New York Times. “It’s not just that bull markets like this one eventually come to an end,” the article says, “It’s that over the long run, while the total stock market has prospered, most individual stocks have not.” It offers findings from finance professor Hendrik Bessembinder (of Arizona State University) showing that,… Read More

Fool’s Gardner on Active Versus Passive Investing

In a recent interview with WealthTrack’s Consuelo Mack, Motley Fool’s Tom Gardner shares insights regarding active versus passive investing and where he sees market opportunities. Tom Gardner, who’s mission through his Motley Fool multi-media network of financial services is to “help the world invest better.” He asserts his belief that index investing is the best first choice for many investors, but not because it’s impossible to be successful through active investing. Active investing, he explains,… Read More

The Math of Stock Picking Works Against Active Managers

The concentration of gains in a minority of index fund holdings—a statistical concept called positive skew—makes it extremely difficult for active managers to beat benchmarks, according to a recent Bloomberg article. Research conducted in 2015 found that “the distribution of returns in the stock market is bizarrely lopsided,” the article argues. “It’s a pattern of returns that virtually ensures everyone outside of an indexer owns mostly deadbeat stocks.” According to Rob Arnott of Research Affiliates: “The focus… Read More

Is It Time for Active Managers to Shine?

“Passive funds tend to attract more inflows after the underlying indexes have performed well, so they’re driven by momentum rather than by analysis of company valuations and fundamentals,” according to a recent article in Barron’s. The article quotes Mike O’Rourke, chief market strategist at Jones Trading, who argues that passive strategies “have a place in the market, but the problem is if they become the market” and when investors believe across-the-board that it’s okay to… Read More

Active Management Versus Passive Investing: How to Choose

Active management fees, coupled with periods of underperformance, have made low-cost index investing attractive for investors, writes Validea CEO John Reese in a recent article for The Globe and Mail. Indexing, Reese explains, was developed as a way for investors to track the market’s return while maintaining diversity and avoiding the time and risk associated with finding the right active manager. The article cites Morningstar data showing that, last year, the flow of funds into… Read More

Stock-Pickers Have Underperformed Benchmarks for the Past 15 Years

According to the latest S&P Indices Versus Active funds scorecard, over the last 15 years (ended December 2016) 82% of all U.S. funds were unable to beat their benchmarks, according to a recent Wall Street Journal article. This supports the growing view that active managers are unable to justify their fees and that “even those managers who do outperform their passive counterparts can’t sustain it year after year,” according to the article. Although active managers… Read More

Index over Active Management Still Requires Discipline

The inevitable periods of underperformance often suffered by active managers—coupled with their relatively high fees—make index investing a more attractive option for many investors. This according to a recent Globe and Mail article by Validea CEO John Reese. Reese writes, “By Mr. Buffett’s reckoning, investors have lost out on $100 billion in fees and underperformance over the years.” The movement to index investing, he argues, is “up-ending the asset management industry.” Still, according to Reese,… Read More

Greenblatt Blends Active and Passive Strategies in New Fund

Joel Greenblatt, managing partner of Gotham Asset Management, may have figured out a way to make active strategies appeal to passive investors, according to a recent article in Forbes. The legendary investor and author of The Little Book that Beats the Market (2010) has started a new fund called the Gotham Index Plus Fund that seeks to bend passive an active management strategies by tracking the S&P 500 and using it, the article says, as… Read More