passive investing

Equity Mutual Funds’ “Active Share”

Here’s a remarkable initiative from the U.K., which you should not expect to see replicated here in the U.S., despite its significant value to investors. Neptune Investment Management, an active equity fund manager in the U.K., has announced that it will publish the “active share” if each of the funds it manages. What does this mean? Well, a fund’s active share is a measure of the extent to which the stocks in its portfolio differ from those comprising the index against which it should be benchmarked. For example, a large-cap U.S. equity fund might reasonably be benchmarked against the S&P […]

Another Bad Year For Active Managers

From the Financial Times (11/11/2014): “Fewer fund managers are beating the market this year than at any time in over a decade, piling further misery on a profession that faces increasing investor scepticism.” Among actively-managed U.S. large-cap equity funds, “Only 17.7 per cent are beating the Russell 1000 index of large-cap stocks so far this year. That compares with 40.5 per cent for 2013 as a whole.” Since 2003, “there has only been one year–2007–when a majority of active managers beat the market.” Every year, of course, there’s some convincing new reason why the “irrational”market once again stumped the managers. […]

Active vs. Passive Investing

How we characterize something often determines how we think about it.  For example, psychologists have shown that we respond differently to an investment represented as having a 45% probability of gain than we would if it were represented as having a 55% probability of loss.  From time immemorial, of course, salesmen have understood this perfectly well and exploited such behavioral biases to their own advantage. But I’ve been thinking about this in a different context: that of active vs. passive investing. Note that I did not characterize this as active and passive investing, but rather as active vs. passive, which […]