Passive investment management has leapt in popularity over the past few years. There seems to be a growing investment cynicism focused on the steep odds against beating the market; the low cost of passive investments becomes attractive when you doubt the ability of active management to serve up a return premium. At Arnerich Massena, though, we see firsthand the value of active management, and our research continually supports its use strategically in portfolios. Now, The Wall Street Journal is backing up our findings in “The Case for Actively Managed Funds,” an article by WSJ columnist Michael Pollock.
Pollock describes five scenarios in which active management earns its stripes as a value-add. For example, active managers’ ability to position defensively means that in down markets, active management can help protect against market losses. “Historically, active managers have lagged behind benchmarks during long, strong bull markets, when securities selection makes less of a difference. They tend to make up lost ground when markets level off or suffer corrections.” Similarly, active management’s ability to make defensive plays can reduce volatility, which is crucial for those building up a nest egg.
Pollock discusses active management in international equity, a market in which active managers have great leeway to diversify away from indexes by using emerging and frontier markets. “Large-cap international-stock funds in the top 25% of their rankings have topped the S&P 500 on average by around 1.5 to 2 percentage points a year,” he notes.
To read the full WSJ article, visit http://www.wsj.com/articles/the-case-for-actively-managed-funds-1423454485
At Arnerich Massena, we believe that both active and passive strategies can play a meaningful role in portfolio construction. We have firm conviction, supported by our research, that active management can add value when used appropriately and wisely. Choosing the right active managers is an essential factor in the success of active strategies. And importantly, investors in actively managed strategies must be willing to look past short-term milestones, expecting some periods of underperformance, in order to gain the longer-term advantages of active management.
To read our white paper comparing active and passive management, Active Versus Passive Investment Management: Analysis Update, visit: http://www.am-a.com/pdf/white-papers/wp_active_passive2010.pdf