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

Active Funds Perked Up in January

January was a good month for actively managed funds, says a recent Bloomberg article that states, “the majority of actively managed value funds in the U.S. and Europe outperformed their benchmarks in January.” This according to strategists at Lyxor Asset Management. Most European growth funds also beat the market, the strategists recently wrote. However, Lyxor cautions that one month’s worth of data isn’t enough to draw many conclusions and that, in fact, value outperformance has… Read More

Mauboussin on Active Vs. Passive Management

A paper co-authored by Michael Mauboussin of Credit Suisse addresses important issues to consider in relation to the continued and increasing shift from active toward passive fund management. Those investors who are moving their money to passive funds, the paper argues, are “less informed than those who stay.” For every winner, it says, there must be a loser—and if there are fewer losers, the game becomes less interesting. In other words, as markets become more… Read More

Investing Lessons from 2016 that Ben Graham May Give a Nod To

It’s the time of year when holiday party-goers lament their seasonal overindulgences and commit to “turning over a new leaf” on January 1st— promises to hit the gym every day, clear the pantry of junk food and turn off devices during family time are among the hopeful resolutions traded over hors d’oeuvres and prosecco. It’s also a time for reflection on the year that’s passed and setting in place a plan for the year ahead.… Read More

Jack Bogle on Indexing: “Math is Math”

Back in 1976 when John “Jack” Bogle started the first index fund, his goal was to “capture the overall market’s return at much lower costs than the stock picking fund managers who so often failed to match it,” writes Bloomberg’s Michael Regan in a recent interview with the octogenarian and retired head of Vanguard. The lengthy conversation covers a wealth of topics including these highlights regarding index investing: While Bogle acknowledges that there are plenty of… Read More

Greenblatt Weighs in on Active Management

“Most people have a tough time sticking with active managers who underperform for a period of time. But of course, if you’re going to beat the market, you have to do something different than the market. And active managers will zig and zag differently,” explains Joel Greenblatt, founder of Gotham Asset Management, in a recent interview with Morningstar. Greenblatt discusses his firm’s disciplined valuation process that uses both absolute and relative value metrics to rank… Read More

Are Value Investors Really “Valuation” Investors?

Even though there has been a lot of commentary around current high stock valuations against lackluster earnings growth for the S&P 500, it is “neither practical or precise” for an investor to use this as a basis for lowering their exposure to stocks or selling their portfolio. This according to Miles Johnson of the Financial Times who writes, “Warnings about irrational stock valuations fail the test of practical advice because they inherently require an unspoken… Read More

Active vs. Passive Results Linked to Market Cycles

Fees contribute heavily to the variance in performance among active and passive fund managers. A recent article in Investment News says that, according to Morningstar data, “higher fees have the biggest impact on performance,” with the largest variance existing in large-cap stock strategies. The data also shows that the divergence worsens as the time period gets longer. However, the article also highlights other research suggesting that results depend on more than just fee structure. Scott… Read More

Can Active Investing Still Generate Alpha?

Back in 1984, Warren Buffett wrote an article entitled “The Superinvestors of Graham-and-Doddsville” (referring to the book Security Analysis co-authored by Benjamin Graham and David Dodd) in which he argues that passively managed funds can generate alpha for investors (beat the market) more so than actively managed funds. In the July issue of Advisor Perspectives, Larry Swedroe bolsters this argument through a discussion of his book The Incredible Shrinking Alpha (co-authored with Andrew Berkin and published early… Read More