The death of active management has been greatly exaggerated
- Since the global financial crisis, high correlations among stock prices have lessened opportunities for outperformance for actively managed equity funds, helping fuel explosive growth in passively managed strategies.
- Active management strategies historically have worked best when market volatility has been high and/or rising, causing dispersion between stock prices to widen.
- “Closet indexers,’’ funds that purport to be actively managed but in reality often mimic their benchmark indexes,don’t generally reflect the potential benefits of active management.
- Research suggests that high conviction strategies in which portfolio components vary significantly from their benchmarks with minimal overlap have the most potential to outperform their indexes (and underperform, too).
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