What do you believe? We spend a lot of time discussing what we believe from an investment perspective; constantly challenging our assumptions all with the goal of constructing the most efficient portfolios to fund our clients’ most important financial goals. One of our firm’s core investment beliefs is that “Active management with skilled managers can beat passive indexes in full market cycles.”
It is our contention that there are investment managers out there that CAN outperform the indexes AND that we have the capability to search them out. No small feat to be sure – but our firm’s 27 year history is helpful. There are plenty of studies on both sides of the aisle in the active vs. passive debate. There are advantages and disadvantages to each style. Not surprisingly, the findings are usually consistent with how the author manages money. Proponents of a passive style often focus on the efficiency of markets and investment costs. As you might expect, active managers (i.e., consultant) have higher costs over passive index investments. Investment expenses are one of many criteria to consider when allocating capital between active and passive investments. Most importantly, we focus on returns after all fees and expenses.
We had a conversation amongst our investment committee recently – our question: “Does a belief in active management imply that there is no place for a passive investment in any category under any circumstance?” I don’t think so. As an active management proponent I can think of at least two circumstances where a passive investment might be appropriate.
- If we believe (based on research I would hope) that there is an asset class that is difficult for a manager to outperform.
OR
If we cannot find a manager that we have a high conviction in to outperform the index.
If one of the two criteria is met then a passive choice might be appropriate. In the end, investment strategies and vehicles are merely a means to an end. The active vs. passive debate is sure to continue. We believe that in most environments there are active managers available that provide value after all fees and expenses.
Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. Expressions or opinion are as of this date and are subject to change without notice. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless or strategy selected.