The Active-Passive Spectrum – Think in terms of continuity rather than conflict - Morningstar

In this article from Morningstar, Alec Lucas, Ph.D. posits a more balanced view of the active/passive conversation.

“The important point…is to evaluate active and passive strategies and portfolios in terms of continuum, not conflict,” writes Lucas.

Lucas goes on to write that, “thinking about where individual strategies and portfolios fall on that scale rather than how they oppose each other is a more constructive way of evaluating investments.”

In an effort to help readers grasp the passive-active continuum, Lucas distinguishes several different types of strategies ranging from the most passive to genuinely active. “At their core, passive strategies are rules-based approaches that aim to reproduce the results of a given market, while active strategies incorporate – to varying degrees – qualitative judgments about the ability of an investment to outperform that market.”

Active is Not Dead: Morningstar’s Johnson [Bloomberg video]

Ben Johnson, Director of Global ETF Research at Morningstar, while interviewed by Bloomberg points out that, "we're all active investors at the end of the day...Active VS Passive is, increasingly, more so than ever a false dichotomy." 

“For everybody who’s saying active is dead, passive is outstripping active. Active is not dead. It’s far from dying. You see that in the hyperactive use of very passive building blocks…you see it in strategic beta, you see it in actively managed ETFs. So, we’re all active investors at the end of the day.”

Nearly half of stock pickers beat their passive peers over the last year – CNBC

This brief story from CNBC further illustrates that active investing is and will continue to be an important part of investors’ portfolios. According to Morningstar, 48% of active U.S. stock funds survived and outperformed their passive peers over the 12 months through June, up from 37% year-over-year, leading some pundits to believe that stock pickers “may be on the comeback trail.”

According to Morningstar data, active growth funds are having the biggest rebound in performance as 66% (an increase from 44% last year) of them beat their passive counterparts.

Less expensive active funds outperformed more than twice as often as the priciest ones in the past year, and two thirds of the cheapest funds survived, Morningstar said.

But fees don’t tell the whole story. The Active Managers Council believes fees need to be seen in the context of total value added to investors. Many active managers provide investors with significant long-term value in excess of fees. Also, worth considering is the non-performance value active management provides with respect to helping investors meet their specific goals.

Importantly, the evidence shows that investors can identify skilled managers in advance, using publicly available information. Professors Cremers, Fulkerson and Riley discuss this substantial evidence in their recent paper, "Challenging the Conventional Wisdom on Asset Managers" (recently published, Financial Analysts Journal).