RECAP: 2019 FOX Global Investment Forum

2019 FOX Global Investment Forum - Recap


Breakout C: The Blurred Lines Between Active and Passive

Daniel Berkowitz, Vanguard


Daniel Berkowitz, CFA, Investment Analyst, Vanguard

Session Description: 

Building on a recently published framework for combining active and passive investments in a portfolio, this session highlighted the case for indexing and utilization of active managers in portfolio construction. Participants also explored the common myths and misperceptions around the active versus passive decision and explained factors that can help investors determine an appropriate mix between them. 


"Given clients’ range of risks and needs, the case for using both active and passive probably makes the most sense.”
- Daniel Berkowitz
Key Takeaways: 
  • Active vs. passive is not a binary decision. Note that any decision to deviate from a broad market cap-weighted index is an active one. Investors are increasingly using passive vehicles to express active views (like geography-specific ETFs).
  • The case for traditional active involves three elements for improving the odds of success: talent, cost, and patience. Identifying talent has not been easy, and growing skill in the industry is making the identification of best talent more difficult. Cost is a powerful indicator of future alpha. Those with patience to endure lengthy underperformance can find success. 
  • Time and willingness to pick managers should drive whether investors engage in active. Time is the biggest opportunity cost.
  • Active outperformance depends on market leadership. Active manager universe tends to do better when their style box is “out of favor”. 
  • Combining active and passive can mitigate relative downside risk. 
  • Index out-performance over active is largely a function of cost. 
  • Both structural and cyclical factors play a role in the difficulty of active managers outperforming the index. 

(FOX Members only)