Does passive management really beat out active over the long-term? Not on an annual basis but lump-some/ total returns.
I have a hard time believing this, especially considering the fact that HF fees are on the decline.
Trending Content
Career Resources
Yes, absolutely.
What do you mean by lump-sum/total returns on this context?
The answer to "does passive outperform active" is almost always yes, but I'm not sure what you're getting at here.
Let me clarify with an example. A hedge fund manager doesn't beat the S&P 500 consistently every year but when he does, his fund returns 80% vs. the S&P's 10%. Thus, even if he exited all his positions, his returns would still be higher than SPY for the next few years. ( i.e. Disregard annualized performance. I'm talking about multiple on invested capital at the end of say 50 years).
Also, if you're hiring a summer analyst I would love to talk outside of the WSO platform.
I think you are messing up your math. Annualized performance (you can discuss if compounded, I.e. reinvested returns or not) is a metric that will give you that answer. If a fund underperforms for 10yrs and then has an 80% vs 10% yr, you will still see who “outperforms” based on annualized returns (that is the “lump sum” paid at the end, basically take $100 invested in both, annualized return when looking at the compounded metric is going to tell you which returns more money - that is how the math works). Although, in general, a good actively managed fund doesn’t make it all up in one year, but rather has consistent returns over time (outside of tail risk funds, etc).
Additionally, your example isn’t very likely, a more likely scenario is that a HF or actively managed fund outperforms during big downturns in the s&p and underperforms during outperformance by the s&p.
What you normally see with actively managed funds (the “good” ones) is better ratio, fewer (and less severe) drawdowns, and uncorrelated to major indices (I.e. diversifying to a portfolio of equities or most major asset classes).
that's insane outperform in Chamath's term
On average, passive has outperformed active in returns because of lower fees, and passive doesn’t hedge its market exposure. Active does add value due to its uncorrelated nature within a portfolio, but a fair portion of that value is taken back by fees. Also, any active fund that does consistently well, you can't get into.
They don’t beat me.
looking at ex US data for passive vs active is an interesting exercise - i think for a lot of economies that cannot be expected to post strong long term secular growth (europe, japan), there is actually a decent case for active management if you have to have exposure to the region
Itaque placeat nihil dolor sit est est dolorem saepe. Explicabo et corporis cum est reprehenderit consequatur. Expedita et temporibus aut excepturi. Quia id ut sunt eius deserunt necessitatibus.
Consequatur cumque accusamus fuga ut. Labore animi enim ipsum odit accusamus eligendi facere. Sed odio et expedita eos perferendis excepturi.
Ea velit ab adipisci nisi architecto et aut sed. Sunt quaerat ut tenetur unde ipsa. Exercitationem qui consequatur unde repellendus. Iusto aut aut quam qui exercitationem rerum fugit. Reprehenderit illum atque consectetur quia. Omnis consectetur distinctio fuga ut.
Aperiam ut nesciunt et error nemo ut est. Quia nobis sequi omnis adipisci minus placeat consequuntur. Itaque ratione porro et earum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...