Active vs Passive Investments: Much ado about nothing or a worthy debate still?
By Brandon Zietsman - May 31, 2020
Safe to say that, since the time of Bulls and Bears, there’s been a fair amount of debate around this investment management tussle. Also safe to say that each supporting camp has merits considered against costs and risks.
In this ten-minute video, Liam Dawson (Investment Analyst at PortfolioMetrix) discusses each investment philosophy, looking at the SPIVA 2019 Report as well as the September 2019 “Active Management and QE Distorted Markets” analysis by J.P. Morgan.
The argument, in broad terms, is as follows:
In the left corner, wearing blue. “Passive investors can have very different returns depending on which index, asset, share or market they are tracking,” writes Devon Card in his Moneyweb article. “Because of the lower investment fees, passive investing can be an excellent way to gain market exposure, particularly in more efficient markets.”
In the right corner, wearing red. “Many investors find the flexibility and freedom of choice in an actively-managed strategy attractive, particularly the ability to exclude assets that conflict with their moral or ethical beliefs.
It is important to remember that, because active investing involves greater rewards, there is also a greater level of investment risk.”
Who’s left standing?
Discussing the PortfolioMetrix stance in this regard Liam reiterates:
“At PortfolioMetrix, we are free to include active or passive strategies in our portfolios – we are technically indifferent. We have a simple guiding principle which is to deliver the best risk-adjusted return to investors after all fees. The day we depart from that we have lost our moral compass.”