White Paper

Active vs. Passive: The Age-Old Debate

Richard Yasenchak, CFA Senior Managing Director, Head of Client Portfolio Management
Valerie Azuelos Managing Director, Product Specialist

Key Ideas

  • 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?

According to Morningstar, actively managed U.S. equity funds experienced $98.4 billion of outflows while passive U.S. equity funds received $166.6 billion in 2014.