Top performing money managers respond to the popularity of passive index investing.

WEALTHTRACK Episode #1411; Originally Broadcast on September 01, 2017

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JOHN BELLOWS

Research Analyst/Portfolio Manager,
Western Asset Management

TOM GARDNER

Co-Founder,
The Motley Fool

ROBERT KLEINSCHMIDT

President, Chief Executive Officer & Chief Investment Officer,
Tocqueville Fund

BRIAN ROGERS

Chairman, Chief Investment Officer ,
T. Rowe Price

JOHN ROGERS

Founder, CEO, Chief Investment Officer,
Ariel Investments

THOMAS RUSSO

Managing Member,
Gardner Russo & Gardner

DANIEL WALLICK

Principal,
Vanguard Investment Strategy Group

DAVID WINTERS

Portfolio Manager,
Wintergreen Fund

The first index mutual fund was introduced to the world by Jack Bogle, Founder of Vanguard in 1976. What was a trickle of interest then has turned into a tidal wave since. Exchange-traded funds, popularly known as ETFs, weren’t launched until 1993. Interest in them has been explosive. Professional and individual investors are voting overwhelmingly in favor of passive index strategies with their portfolios.

For the first time ever, ETFs, more than 90% of which are passive index funds have one trillion dollars more money than hedge funds globally. According to The Wall Street Journal, exchange-traded funds surpassed hedge fund assets two years ago, but the trend has accelerated.

It’s hard to beat the ETF fee discount. The asset weighted average annual cost for ETF’s globally is 0.27%, according to consulting firm ETFGIcompared to the traditional charges of 2% on assets and 20% on profits taken by hedge funds, which by the way have dramatically underperformed the S&P 500 every year since the 2009 market bottom.

Performance is the other key advantage index funds have possessed in recent years. As we have reported here before, the recent SPIVA report, the bi-annual “S&P Indices Versus Active” scorecard recently tracked 15 years of performance of actively managed mutual funds versus the appropriate market indexes. The results were overwhelming – more than 92% of large-cap, 95% of mid-cap, and 93% of small-cap managers – trailed their respective benchmarks. Active’s underperformance showed up in international stock markets and surprisingly in many fixed income categories as well.

Of course there are always exceptions, and we try to find them on WEALTHTRACK
Over the last few months we have asked a number of our portfolio manager guests, most with exceptional long term track records, to give us their views on the active versus passive debate. You’ll hear their opinions on this week’s show.

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Thank you for watching. Have a great Labor Day weekend and make the week ahead a profitable and a productive one!

Best Regards,

Consuelo

USE PASSIVE AND ACTIVE TO YOUR COMFORT LEVELS

Choose index funds
Diversify globally & by asset class
Include safe haven investments
e.g. Treasury bonds & Gold

Core position in broad global stock index fund or ETF
Satellite positions in actively managed mutual funds
Possible Specialties: Small Cap Value, High-growth Tech, Global bonds, Real Estate Investment Trusts

Actively managed funds
Global & asset class diversification

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Full episodes featured in this special on Active-Passive debate:

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