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It’s not about active or passive, but about costs

It’s not about active or passive, but about costs

06-03-2019 | From the field
What if costs were the real issue in the heated active versus passive debate? This study 1 finds that much of the historical outperformance of passively managed funds relative to actively managed funds is simply a result of expenses. In today’s mutual fund market, however, there are many actively managed funds with expenses that are comparable to those of passively managed funds.
  • David Blitz
    David
    Blitz
    Head of Quant Research

The study goes on to show that when passively managed funds are compared to these competitively priced actively managed funds, there is no economically meaningful difference in performance between active and passive.

The author concludes that as long as investors are cost conscious in their fund selection process, the active versus passive choice is basically irrelevant. We think these results make a lot of sense, and that investors should indeed focus on costs instead of taking a dogmatic stance in the highly polarized active versus passive debate.

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1 Nanigian, ‘The Historical Record on Active vs. Passive Mutual Fund Performance’, working paper, 2018.

From the field
From the field

Our researchers publish many whitepapers based on their own empirical studies; they also follow quantitative research done by others.

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