Both passive and active are here to stay.  The correct answer to which is better? As always is, “It depends.”

It depends on what is passive and what is active.  And in the end, people will disagree anyway.

An index based on screening for different variables used by active managers can now be made into an index.  Does this make the manager passive? Is the portfolio passive?  Or does passive mean a systematized process used to create an investment vehicle, like the S&P 500 index.  Technology will continue to drive down the cost of active parts (factors and formulas) and our industry will continue to talk about how ones parts are better than the next person’s parts.  The debate should be about who in our industry has the courage to use the parts to meet the client’s objectives of a Global Balanced Benchmark.  The reason we need to debate courage or call it some other term is because ROR vs Bench, is not that simple.  And if the benchmark parts match the portfolio parts exactly, the portfolio will have a low probability to outperform, net of fees.  The debate needs to change.

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