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The article's argument is based on recent investor preferences - everybody and his dog is going after the good performance of passive funds over the past 5 years. My guess is that after the next solid correction, we will see articles about the superior performance of some actively managed funds.
From the comment section of Ted's link was this study from Lord Abbett: Quote: For those invested in model portfolios, these findings are critical. "What the active share research has revealed," said Prahl, "is that managers relying on market timing are less likely, on average, to add value than managers who engage in stock picking." For those opting for passive portfolios, "stock picking is a lot to give up," he added. "That's what the active share literature shows."
Ibbotson's critique of the 90% rule—combined with active share research showing that diversified, highly active stock pickers have consistently added alpha—means that investors should no longer rely strictly on strategic allocation for their long-run returns.
As long as there are good fund managers then those active funds will be in demand. There are also a lot of new funds relative that are un -constrained and are attracting investors. With a "star" manager these funds could be popular especially if they outperform in down markets.
They won't take over the index funds but they have their place.
Here is a result from a MFO Fund database search, sorted by UI - ulcer index, lower is better. These funds, over a 20 year period, performed well compared to the S&P 500 (VFINX) with lower drawdowns in 2009. Over the past 3 years these funds have captured only about 70% of the S&P gain (my ball park estimate), but one could anticipate that they would also capture less of the next drawdown, making it easier to stick with your plan.
Chap, you will want to screen (maybe elsewhere) also by manager tenure (longevity); Pinto, I think it is, at Janus Balanced, has been active since only 05 or something like that. (He seems as good as they come, I must add.) In any case, there are active funds, a few, that have outdone indexes over long period with one person or team, and a very few with superior dip protection 08-09 (my and others' complaint with the Owl ranking). Yes, I know this is survivor bias. Still, worth saluting. MAPOX is an amazing achievement for sure. Those Wisconsin guys (OAKBX guys too).
David, yes, manager tenure is a factor I take into account, including previous shops for those setting up a new firm. The active/passive discussion probably comes down to personal preference. Mine is to attempt to avoid 100% capture of any downside and not to play around with timing.
Comments
Quote:
For those invested in model portfolios, these findings are critical. "What the active share research has revealed," said Prahl, "is that managers relying on market timing are less likely, on average, to add value than managers who engage in stock picking." For those opting for passive portfolios, "stock picking is a lot to give up," he added. "That's what the active share literature shows."
Ibbotson's critique of the 90% rule—combined with active share research showing that diversified, highly active stock pickers have consistently added alpha—means that investors should no longer rely strictly on strategic allocation for their long-run returns.
asset-allocation-and-the-90-percent-rule-a-reality-check
They won't take over the index funds but they have their place.
Fund APR MDD UI
MAPOX 10.3 -33.1 6.2
JABLX 10.3 -22.2 6.3
VWELX 10.1 -32.5 6.4
PRWCX 11.3 -36.6 6.5
FPACX 11.1 -28.8 6.7
JAMBX 7.4 -29.0 10.5
VFINX 9.7 -51.0 17.6
Apologies - I have not yet figured out how to post a result from the "Risk Profile" scan.
The active/passive discussion probably comes down to personal preference. Mine is to attempt to avoid 100% capture of any downside and not to play around with timing.