The Trend Against Active Management

One of our core stock investment philosophies is that it is difficult to pick active money managers, in advance, who will outperform their respective benchmarks, over a long period of time. Active managers are those that try to pick the best stocks because they think they can outperform others.

The academic evidence against the success of active management, and for passive management, is very strong. An article in today’s Wall Street Journal* stated that “a growing number of big investors are concluding that stock and bond pickers failed to add any value during the market turmoil and are shifting to index funds.”

“Active managers have not given us the added performance in a down market that we hoped for,” stated Bill Atwoood, executive director of the $9 billion Illinois State board of Investment. He expressed disappointment with both large and small stock managers.

The evidence that we have reviewed over time shows that this trend prevails in markets over time, in the US, International and Emerging Markets, particularly if taxes and trading costs are considered.

For more information on our investment philosophy, please contact us.

* Wall Street Journal, 6/22/09, “Active Managers Get the Cold Shoulder”

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