Investors look to active management for performance characteristics that are differentiated from the index. Areas of the market that experience greater dispersion may, on the whole, offer a better target for active managers. But an active allocation can benefit investors in asset classes with less dispersion, too, such as U.S. large cap equities.

Harnessing the Heterogeneity of Emerging Markets

Investors may allocate to emerging market equities in search of a growth rate that surpasses what is generally available in developed markets like the United States. But certain areas within emerging markets may offer better return potential than others—and passive strategies, which heavily weight areas such as Chinese steel companies and banks, often fail to capture this potential.

The Role of Active in U.S. Large Cap Equities

Even in U.S. large cap equities, which tend to experience less dispersion, combining active and passive strategies can add value. The flow of funds into passive strategies has created high valuations in certain sectors. In my view, adding exposure to more attractively valued sectors or investment factors may improve a portfolio’s return profile.

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