Is passive investing a better investment strategy than active asset management? Or, as seems intuitive, should active management provide higher net returns? Intuition is nice. But what does empirical evidence tell us in the passive versus active management debate?
All that and more in Episode 36 on the Wilson Wealth Management YouTube channel.
“Does active asset management outperform a passive strategy?”
Some empirical studies have found that active management can produce “alpha”. That is, the managers have been able to outperform their benchmark indices in net investment returns.
“So why the debate about passive management?”
Unfortunately, there are many other studies that have found that active management does not consistently outperform over time.
If you search the internet, you will find research that suggests one or the other is preferable.
“Forget the studies. Can you show me some actual performance data?”
So, let us review some empirical data of our own. If we look at recent Morningstar data on actively managed funds in the US, some interesting inferences may be drawn.
It is indeed, very difficult, for active managers to consistently outperform their benchmarks over longer time periods.
There are a few areas where active management may be preferable. But, in general, it is hard.
In future episodes, we will discuss why achieving active manager “alpha” is not easy. And possible areas where active management may be useful.
To read a little more on empirical evidence, please refer to “Passive versus Active Management”.
