Active vs. Passive – The Age-Old Debate

Articles and discussions focused on the benefits and shortcomings of active versus passive investing are prolific – and the debate rages on.

Many active managers have disappointed over recent years, resulting in numerous investors steadily shifting assets to passive strategies. While actively managed funds still hold the majority of assets worldwide, passive investing is gaining market share at a rapid pace.

Is this the right time to make the active decision to go passive? In this paper, we will discuss the following:

• Active management results tend to be cyclical; history shows that past out-of-favor periods were followed by strong reversals.
• Active management results vary with the direction and magnitude of market performance; and although passive management captures the upside movements of stocks, it also realizes all of the downside risk.
• Should we rethink active management as a strategy that ideally would self-adapt to changing market conditions?

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