Passive Implementation

The factors that allowed active investment management to be successful in the 1980’s and 1990’s were eliminated by rapid dissemination of information through the internet and strict regulatory controls on the use of insider information. Standard & Poors conducts the gold standard of active vs passive comparisons (the SPIVA Studies) and has shown that, since 2000, there has never been a cumulative five year period where even 50% of active managers beat their passive indices.

The SPIVA Studies - Index vs. Active (5-year Horizon)

Further, when you look carefully at active returns you find that not only are the odds very low of choosing active managers in advance that will succeed vs their benchmarks but the cost of failure is very high. Finally, the more active managers you have in your portfolio the lower the odds of success and the higher the costs.

The SPIVA Studies (Standard & Poor's Index vs. Active)

Conclusion – the core of our portfolios will be passively executed and use of active managers will be rare.