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Active Investing: The Case for a High Conviction Approach

Highlights

  • The debate over the relative merits of active and passive investing goes on.
  • We think it’s time for skeptics to give high conviction, active management a fresh look.
  • A truly actively managed investment strategy can give investors the chance to outperform over a long period of time.

Our firm believes that to win, one must be different. Bold. In the world of asset management, being bold is being a high conviction, active investor with a global perspective and the ability to distinguish between intended and unintended risks. As it happens, these are precisely the characteristics that, according to a growing body of research, have consistently outperformed not only passive investments, but other types of active strategies, as well.

In the perennial debate over the merits of active and passive investing, the passive camp argues that the average actively managed fund trails the average passive fund over the long term. There’s more to the story—a lot more.

The fact is that not all active management styles are created equal. A certain type of high conviction, highly active manager, dubbed “diversified stock pickers” in a groundbreaking series of academic studies, has a clear record of outperforming both their benchmarks and associated passive strategies over a range of time frames, even net of fees. At the same time, the supposed benefits of passive strategies don’t always hold up. Indeed, some of the ingrained issues of many passive strategies often prevent them from accurately reflecting market realities.

Actively managed investment strategies should play a key role in any investment portfolio for a variety of reasons:

  • Diversified stock pickers have beaten passive strategies globally Net of fees, truly active diversified stock pickers outperformed the most common benchmarks over meaningful time frames.
  • Passive strategies are not as passive as you think Several facts inherent to many passive strategies keep them from ever being truly indicative of market realities.
  • The coming market may favor active managers A more mature phase in the profit recovery cycle may offer active managers a better opportunity to add value.

In short, a truly actively managed investment strategy can give investors the chance to outperform over a long period of time.

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