M* Tweaks the Active Passive Debate
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Friday, June 26, 2015

M* Tweaks the Active Passive Debate

Joe Mansueto and his team are weighing in on the active vs. passive fight in a slightly different way. The new perspective looks at category averages and not individual funds, at least for now, and comes in semi-annual report format. And the press is paying attention.

Ben Johnson
Director of Passive Funds Research
Yesterday at the 2015 Morningstar Investment Conference at the massive McCormick Place convention center in Chicago, Morningstar global ETF research director Ben Johnson unveiled the mutual fund ratings giant's new report comparing active mutual funds' performance to actual passive funds' performance. It's a tweak from the direct to index comparison, and it means that passive funds' fees, and tracking error, now factor in to such comparisons.

InvestmentNews, PlanSponsor, the Wall Street Journal, and all covered the new report.

The 14-page report digs into average performance across 12 broad investing styles, and word is that M* will be releasing the report twice each year. And though the active vs. passive comparison varies widely across the different style boxes, there is one key point of consistency that should warm the heart of at least the titans of active management; in all but one of those 12 categories, the lowest-cost active funds had significantly higher success rates of beating their passive peers.

For now the report is about categories overall, not individual funds. But perhaps individual active funds will soon have their own comparison numbers to their average passive peers, in addition to their performace-vs-the-benchmark numbers.

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