PASSIVE INDEX FUNDS ARE ALL THE RAGE, BUT WHAT ABOUT ACTIVE FUNDS THAT BUCK THE TREND? TOP PERFORMING MONEY MANAGERS RESPOND
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,
USE PASSIVE AND ACTIVE TO YOUR COMFORT LEVELS
- NO INTEREST IN INVESTING:
- Choose index funds
- Diversify globally & by asset class
- Include safe haven investments
e.g. Treasury bonds & Gold
- COMFORT LEVEL COMBINATION:
- 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
- TRADITIONAL CHOICE:
- Actively managed funds
- Global & asset class diversification
No Bookshelf titles this week.
No ONE INVESTMENT for this episode.
No stock mentions in this episode.
WEALTHTRACK PREMIUM subscribers can access your copy here, otherwise this transcript is available here for purchase.
More information regarding WEALTHTRACK transcripts can be found here
Full episodes featured in this special on Active-Passive debate:TWO AWARD WINNING BOND MANAGERS EXPLAIN WHY LOW INTEREST RATES & SUBDUED INFLATION WILL KEEP THE ECONOMIC RECOVERY ON TRACK AND THE IMPLICATIONS FOR INVESTORS
Finding rare sources of income in a low-income world with Brandywine Global’s Stephen Smith and Western Asset Management’s John Bellows.
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WHY DOES ACTIVE STOCK PICKER TOM GARDNER RECOMMEND MOST OF US SHOULD INVEST IN A PASSIVE INDEX FUND?
Why index investing is best for most, but stock picking reigns supreme for some with Motley Fool co-founder Tom Gardner, who has a track record to prove it.
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INVESTING WHERE YOU DON’T WANT TO BE, WITH TOCQUEVILLE ASSET MANAGEMENT’S CONTRARIAN MANAGER ROBERT KLEINSCHMIDT
In an exclusive interview, Tocqueville Fund’s contrarian investor, Robert Kleinschmidt explains why he is finding the best values where you don’t want to be.
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AN EXCLUSIVE WITH T. ROWE PRICE’S BRIAN ROGERS ON THE LESSONS LEARNED FOR SUCCESSFUL INVESTING
In a WEALTHTRACK exclusive,T. Rowe Price’s Brian Rogers shares the investment lessons learned over a three decade career running an award winning mutual fund and a decade managing the firm and its investment strategies. Near the top of the list are why humility is so important to successful investing and why over confidence is an investor’s greatest challenge.
WHAT’S THE FORMULA FOR INVESTMENT LONGEVITY AND SUCCESS? JOHN ROGERS SHARES HIS MARKET BEATING APPROACH
Why a slow, steady and contrarian approach wins the investment race over the long haul with Ariel Fund’s Founder and Portfolio Manager John Rogers.
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GREAT VALUE INVESTOR & GLOBAL BRAND NAME INVESTMENT SPECIALIST, THOMAS RUSSO, SHARES HIS CURRENT STRATEGIES
In a rare interview, great value investor Tom Russo explains why the ability to say no and the capacity to suffer are key to investment success.
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GREAT INVESTOR DAVID WALLACK OF T.ROWE PRICE’S GOLD RATED MID-CAP VALUE FUND DISCUSSES HIS CONTRARIAN APPROACH
A rare interview with Great Investor and Morningstar’s 2016 Domestic-Stock Fund Manager of the Year, David Wallack.
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GLOBAL VALUE INVESTOR DAVID WINTERS RAISES THE ALARM ABOUT THE FLOOD OF MONEY POURING INTO INDEX FUNDS
Global value investor David Winters takes on index funds, saying they are more expensive, less diversified and higher risk than commonly believed.
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