Should I go Passive or Active?

Please follow & like us ūüôā

Follow by Email

There has been a healthy debate over the years of whether to structure your portfolio allocation with broad based index ETFs (passive) that track the market or specific funds (active) that try to beat their benchmark and the market. The cost of active is fees but the upside is alpha. Based on the manager, the sector and the fund company there are fees that are charged to the fund that reduce the return with expectation that a good manager can beat the market. 

Zachary Karabell wrote in Barron's "On a ten-year basis ending in 2013, 45% of active managers outperformed the index, and most of those barely outperformed, by less than 1%. Most of the underperformers also barely underperformed, by the same margin. Given higher fees, the conclusion of pure performance data is that one often pays active managers for index returns, and pays them considerably more than for passive funds." Why pay the fees when a majority of managers can't beat the market?

With years like 2011 and 2015 the market barely beat your savings account. There are always active managers that consistently outperform the market. The Warren Buffett didn't make his money investing in ETF's. Good managers are worth every penny in fees. The challenge is good manager selection. 

How should we play it? The best outcome is a hybrid model. Parts of your portfolio should be passive and parts should be active. Selection is not a function of chance but tested parameters. Good research, forecasting and back testing is critical to success and many portfolio managers out there just don't do it. There is benefit to have active exposures in some parts of your portfolio where a good manager will reduce risk and increase alpha. Working with Protectio Investments we will build a portfolio allocation that aligns with your goals and preferences and manages risk with opportunity.  We are portfolio specialists and would love to work with you.

Contact us today.

The content published on does not constitute a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person, business, or entity of any kind. Please consult us further concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter.  There is inherent risk in all investments and possibility for total loss. 
Please follow and like us: