A Case for Active Investing Management

The studies showing that active stock managers lag the indexes cause many investors to believe active management is a waste of time and money. This article makes the case that many people misunderstand those studies and draw the wrong conclusions. It points out that the studies focus only on the narrow asset class of large U.S. company stocks. In other asset classes, active managers often out perform indexes by wide margins. It also makes other points, such as that the dominance of index investing is cyclical. The article was written for financial managers but is accessible for most readers.

Most large cap U.S. equity mutual funds have faced performance challenges relative to the benchmark over the last five years ending 2016. This has caused many investors to question the value of active management. However, we caution against a wholesale indictment of active management based solely on a specific (albeit meaningful) asset class’ performance. We believe active management is cyclical and that truly skilled active managers can outperform. Impressive performance in emerging market equity, international developed and intermediate-term bond mutual funds over the past five years confirm this.