A recent article in Advisor Perspectives outlines new research findings showing that actively managed funds underperform their benchmarks on a risk-adjusted as well as an absolute basis, and the findings hold true across asset classes and sub-classes. The article outlines a summary of the 2019 report: Over the past five-, 10-, and 15-year periods: 84%, 97%, and 92% of actively managed large-cap funds have underperformed their benchmarks. 65%, 80%, and 86% of actively managed mid-cap… Read More
As the active versus passive debate continues, relative performance is only a small part of the discussion according to a recent CFA Institute article that outlines three questions that both professional and retail investors should consider within this context: Is outperformance of a market index possible? The article says this depends on the “number of securities available in a given market, the dispersion between the best- and worst- performing among them, and the proportion of… Read More
One prominent asset manager says that dominated of today’s market by passive funds and quantitative strategies is creating opportunities for his actively managed funds. This according to an article inInstitutional Investor. Warrren Koontz, head of value equity for Jennison Associates (the $176 billion fundamental fixed income and equity manager for PGIM), said, “There’s no better time to be an active manager than now—and it’s even more dramatic in the value space.” He explained that his… Read More
In a recent podcast interview, Miller Value Partners founder Bill Miller shared insights on market trends. Here are some highlights of the interview: “I think it’s always difficult to outperform,” Miller said, adding, “It’s trickier now not because of index funds but because of the charged polarity of the market after the financial crisis. Specifically, it was so devastating to so many people that they have become risk and volatility-phobic.” When people perceive increased risk,… Read More
According to an article in Bloomberg, “fewer stock pickers are beating their indexes, with value managers among the worst performers.” The article cites a Morningstar report (that examined results of 4,500 active and passive U.S. mutual funds and ETFs) showing that just 36 percent of actively managed stock funds topped their indexes through June, down from 43 percent in 2017. It also reports that low-cost index funds have been “gaining market share for years as… Read More
Leon Cooperman and Steven Einhorn of Omega Advisors have worked together for 40 years and have nearly 100 years of investment experience between them, according to an article in Barron’s that shares highlights of an interview with the two moguls. Cooperman and Einhorn “expect the bull market in U.S. equities to run for a while longer,” the article reports, “given relatively friendly valuations and Federal Reserve policy.” Bonds are another story, however. In the interview,… Read More
Morningstar’s director of global ETF research, Ben Johnson, recently shared research regarding the relative performance of active and passive investors with Christine Benz. Morningstar’s data on domestic equity cash flow-weighted returns for index fund versus active investors, says Benz, “makes index fund investors look pretty smart. According to Johnson, the research shows that index fund performance has a lower “return gap”—the difference between time-weighted and cash flow-weighted returns. That is, index investors set expectations for… Read More
In a recent episode of WealthTrack, Consuelo Mack interviewed Gotham Asset Management’s Joel Greenblatt, who shared his thoughts on active and passive investing and how he has combined the two in an effort to discourage investors from bailing out of a strategy in tough times. Greenblatt explained that human nature leads investors to pile into well-performing funds and pile out of underperformers—which ends in lost opportunity and dollar losses as well. He discussed the genesis… Read More
By Jack Forehand (@practicalquant) — It has become a common belief in the investing community that passive investing is superior to active management. And there is a large volume of data that supports that argument. Over time, active managers have not produced sufficient returns to justify their fees. In aggregate, finance theory tells us that active managers as a whole will produce the same gross return as the market over the long-term, and their underperformance on… Read More
By Jack Forehand (@practicalquant) — When active managers are struggling relative to their benchmarks, you will often hear the same description of the problem. They will talk about how the current period has been a rough one for active management, but things are about to change and we are moving toward a “stock pickers market” where the criteria they use to select stocks will begin working again. They will argue that active management will rise again… Read More