Active management deserves all the criticism it gets. After all, over 80% of equity managers underperform their benchmarks over the long-term and active managers charge vastly higher fees compared to passive indices.
But active management also gets a bad rap. There are many active strategies that perform very well over time, and justify the fees they charge.
How can both of these conflicting statements simultaneously be true? The answer lies of the definition of the term “active management” and the fact that many strategies that investors consider passive also have significant active components.
In this episode we talk about the various types of active management and the pros and cons of each.
We discuss:
- Why the S&P 500 is an active portfolio;
- The various approaches to fundamental indexing;
- The one type of active management that should be avoided at all costs;
- The pros and cons of factor investing;
- Whether the days of the star fund manager are over.
We hope you enjoy the discussion.
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Show Notes:
- Jack’s article: The Different Shades of Active Management
