The passive/active debate is almost as old as time itself and while advisors are probably sick of reading about it, it’s a discussion that continues to illicit passionate responses on both sides of the issue
On Tuesday WP explored the idea that active management had failed miserably in 2015 and that quite possibly it might never recover from the its latest crushing defeat.
Was active management dead we asked Ottawa advisor Ben Felix. Not quite, Felix responded but the latest stats don’t hold out much hope for this type of investing.
“The high probability of missing the top performing stocks is a major hurdle for active managers; engaging in stock selection disproportionately increases the chance of underperformance relative to the chance of outperformance,” wrote Felix. “So, even before fees are considered, the odds are not in favour of active management.”
Not exactly a ringing endorsement for active management’s survival.
So, we reached out to RBC Dominion Securities advisor Greg Hall, who constructs his own portfolios of stocks to meet client objectives, and he’s very adamant that in the hands of the right people, active management is very much alive and well.
“Every year, two questions regarding active management re-circulate,” Hall commented to WP. “To justify the embarrassingly high fees charged and prove that active management returns outperform passive ones.”
In 2015, large-cap core fund managers seriously underperformed the S&P 500. It wasn’t even close. In Hall’s experience with his own client’s returns, the results have been index-beating this past year and as a result he’s not nearly as downcast about the future.
“All of my portfolios returned substantially more than all major North American indices in 2015, not just the TSX” Hall told WP. “Can a do it yourselfer achieve returns that beat the market; absolutely, but not by investing passively.”
In Hall’s opinion the value proposition provided by active management makes the argument between active and passive investing a non-starter in his eyes.
“Is active management dead?” asked Hall rhetorically. “No it’s most definitely not; on the contrary, active management’s best days lie ahead.”
Was active management dead we asked Ottawa advisor Ben Felix. Not quite, Felix responded but the latest stats don’t hold out much hope for this type of investing.
“The high probability of missing the top performing stocks is a major hurdle for active managers; engaging in stock selection disproportionately increases the chance of underperformance relative to the chance of outperformance,” wrote Felix. “So, even before fees are considered, the odds are not in favour of active management.”
Not exactly a ringing endorsement for active management’s survival.
So, we reached out to RBC Dominion Securities advisor Greg Hall, who constructs his own portfolios of stocks to meet client objectives, and he’s very adamant that in the hands of the right people, active management is very much alive and well.
“Every year, two questions regarding active management re-circulate,” Hall commented to WP. “To justify the embarrassingly high fees charged and prove that active management returns outperform passive ones.”
In 2015, large-cap core fund managers seriously underperformed the S&P 500. It wasn’t even close. In Hall’s experience with his own client’s returns, the results have been index-beating this past year and as a result he’s not nearly as downcast about the future.
“All of my portfolios returned substantially more than all major North American indices in 2015, not just the TSX” Hall told WP. “Can a do it yourselfer achieve returns that beat the market; absolutely, but not by investing passively.”
In Hall’s opinion the value proposition provided by active management makes the argument between active and passive investing a non-starter in his eyes.
“Is active management dead?” asked Hall rhetorically. “No it’s most definitely not; on the contrary, active management’s best days lie ahead.”
