How active is your passive investment manager (and vice versa)?
BNN Bloomberg
The decades-old active versus passive investing debate has turned into a mud fight where it’s hard to know which side is which.
The decades-old active versus passive investing debate has turned into a mud fight where it’s hard to know which side is which.
The first shot was fired in the 1990s when passively-managed index-linked exchange-traded funds (ETFs) hit the market. Those ETFs gave investors indirect access to stocks trading on all the major global indices such as the Toronto Stock Exchange and Nasdaq, and even specific sectors within them - all for a fraction of the cost of an actively-managed mutual fund.
Generally, active investing puts investment decisions in the hands of professional money managers and passive investing puts investment decisions in the hands of every single market participant.
When it comes to which method reaps the greatest rewards, results vary depending on how the data is sliced and diced. Actual returns from objective trackers show actively-managed mutual funds have the edge overall; but, in a cruel catch-22 for investors, they underperform once fees are applied.
There is no single definition of active or passive management these days but there are degrees that can help you determine if the fees you pay are for the services you get.
In its purest form, active managers are professionals who invest on behalf of a client based on the individual’s goals and tolerance for risk. They are part of a team that determines the best investments to buy, hold or sell.
