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The Active Versus Passive Debate has been Re-Awakened...

Symbiosis: Can active and passive investing exist in perfect harmony? 

The performance of indexes relative to actively managed funds has come under even greater scrutiny lately as markets and investors take steps to review and recover from the coronavirus crisis. However, with recent news stories celebrating the emergence of ETF products that are actively managed, lines are blurring around this long-held rivalry. Is now the time to consider active AND passive together, rather than apart? 

This collection of content offers views, performance analysis and trend assessments on both passive and active investment strategies, including guidance on measuring ‘Active Share’. The papers detailing the pros attributed to the new active ETFs and considerations for asset managers seeking to launch one, may be of particular interest. 

 

Passive versus active investing debate

 

An Index isn’t a Fiduciary: The push for passive (Wellington Management, 2020)

Adam Berger from Wellington Investment Management supplies reasons why active management, in his view, plays a meaningful role in investment portfolios.

A New Milestone for Exchange Traded Funds (State Street, 2020)

State Street’s ETF team examines the recent introduction of Exchange Traded Funds that are both active and semi-transparent. They discuss how these new products offer space for greater innovation and increased investor choice.

Passive Investing 2020 (DWS)

Sponsored by DWS, this survey reveals some forward-looking trends within passive investing. It examines how pension funds are using passive funds in response to global warming and how the coronavirus pandemic might affect their approach.

The Financial Index Industry (The Conference Board, 2019)

This report, sponsored by the Index Industry Association, looks at how the indexing industry has made an economic impact. It offers a primer on financial indexes and also outlines why benchmarking is important.

Making Sense of the Active Manager’s Conundrum (S&P Dow Jones Indices, 2020)

In this video, S&P looks at why certain market environments are better for positive returns on an absolute basis, but less conducive on a relative basis. For a deeper dive, read their paper of the same name.

Demonstrating the Value of Active Management (FactSet, 2020)

This paper from FactSet puts the spotlight on the long-standing debate over active and passive investing. To demonstrate the value present in active management, they outline four core strategies.

Recovering Investor Expectations from Demand for Index Funds (2020)

Authors from Harvard University examine investor expectations for stock market returns. They use a revealed-preference approach and demand data on index funds to understand trends in expectations across various times and market backdrops.

Video: How to compute 'active share' (Alpha Architect, 2020)

Active Share, according to Jack Vogel PhD, is a means to measure the extent to which fund holdings vary versus the related index. This video shows the calculation method in excel and how multiple funds can be compared using this technique.

Passive in Name Only: Delegated Management and 'Index' Investing (2019)

This paper assesses the US stock market indices landscape using hand-collected data and empirical analysis. Professor Adriana Robertson explores the heterogeneity of indices and examines passive index funds as well as ETFs.

Active Managers: No place to hide (S&P Dow Jones Indices blog, Jun 2020)

This blog from S&P Dow Jones reports the latest performance of their Indices and compares results with those of active managers across multiple sectors and asset classes. It also discusses market timing as a factor to consider.

Semi-Transparent Exchange-Traded Funds (Investments & Wealth Institute, 2020)

Investments & Wealth Institute explores some of the additional steps for asset managers to consider if they are seeking to launch an actively managed strategy within an exchange traded fund wrapper.

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