Active and Passive, Not Active vs. Passive
We have received a lot of questions recently about active vs. passive investment management. This may not come as a surprise as the financial media has run many stories on this topic over the past few years. Variations of the headline Active Management is Dead have been published by multiple media outlets leading to this notion becoming an accepted conviction by many.
It makes sense given that, since the financial crisis, widely followed equity indices such as the S&P 500 have been performing extremely well. In fact, from 12/31/2008 to 12/31/2016 the S&P 500 is up 151% with not one negative calendar-year return during that entire period. In this type of market environment, with the tendency of stocks to rise in unison with unusually low volatility, it is very difficult for active managers, who try to outperform the market by being different from it, to outperform. They do not get rewarded for doing the kind of research that enables them to pick winners and avoid losers like they would in markets that are more discriminating as to the quality of individual companies.
