Passive Investing Is Not as ‘Passive’ as You Might Think – Bloomberg

“The changing of the guard in asset management is complete,” writes Brandon Kochkodin. “Passive overtook active in 2019: Assets in U.S. index funds and exchange-traded funds surpassed those in actively managed funds.”

“But don’t shed a tear for active management just yet. There’s still plenty of money in vehicles overseen by security-picking managers. And, for that matter, many of the funds classified as “passive” follow indexes that show signs of a human touch.”

The Active Managers Council agrees. In fact, the Council first covered this topic in September - Passive Investors: You Are More Active Than They Think (And that’s probably a good thing).

The point is that investing requires constant evaluation, recalibration and adjustment. Even a “passive only” portfolio requires active decisions and continuous management. When investors develop an investment plan (ideally with the help of a professional financial adviser), there is no “one-size-fits-all” solution because every investor has unique goals and considerations that require a mix of investment products, solutions and approaches. Understanding the range of options and techniques can be helpful to making better decisions.

Bottom line, Kochkodin reports, even though many funds don’t label themselves as “active” they require significant human input.

RBC Fund Manager Says Screening Stocks for ESG Is a ‘Slippery Slope’ - Bloomberg

In this Q&A with Bloomberg’s Doug Alexander, Sarah Riopelle, who oversees $107 billion at RBC Global Asset Management shares her views on active management and how managers justify their fees.

“Active and passive both have a place in an investment portfolio,” says Riopelle.

“I’m of the view that the decision on investing in passive is probably based on two key things. One is the availability of alpha in the particular asset class that you’re looking at. So, if you’re looking at large-cap U.S. equities, as an example, generating alpha in that asset class is becoming more and more difficult with the number of people and investors who are in that space. So that possibly would be a place where you would consider a passive allocation. But if you’re investing in emerging-market small-cap equities, if you want to go to the total other end of the spectrum, there’s a lot of alpha available there to harvest for active managers, so it probably makes more sense to go active there.”

As the ETF turns 30, it is time for active managers to embrace it – Financial Times

Salim Ramji, global head of iShares and index investments at BlackRock penned this opinion piece for Financial Times, declaring “the great horse race” between active and passive is over. Ramji explains that the ETF, once an “obscure product” is today “best understood as a technology that can give investors greater flexibility, lower costs, and the convenience of access.”  

“The dominant narrative surrounding exchange traded funds over their 30-year history has been a kind of active-versus-indexing derby, in which investors must choose one or the other. But that is the wrong way of looking at it. These days, there is a quiet revolution under way, in which index-tracking ETFs are used within actively managed portfolios. In an ironic twist, it is active fund managers who are now among the fastest-growing segments among users of ETFs.”

As proof of the widespread adoption, Ramji writes that discretionary wealth managers around the world “are taking the lead when it comes to using ETFs within actively managed portfolios.”

Ramji indicates that as fees and commissions come down, and demands mount for greater transparency and persistent returns, discretionary wealth managers are using ETFs not only for strategic allocations but in seeking excess returns through factors such as “quality” and “minimum volatility”. And they are expressing tactical views on sectors or countries through ETFs, rather than through individual securities.