Active funds for passive investors

These actively-managed medalists play well with broad market index funds.

Christopher Davis 4 November, 2016 | 5:00PM

Active management has gotten a bad rap, and much of it is well deserved. Critics deride active funds as too expensive, too index-like, and likely to underperform an inexpensive broad market index fund over the long haul.

Given the difficulty most active managers in most markets, including Canada, have had in outperforming their benchmarks after fees, they surely have a point. Diversification, low costs and the high odds of long-term success make broad market index trackers appealing core holdings.

However, arguing that inexpensive, passive funds should form the core of a portfolio isn't the same as saying they should make up the entire portfolio. As philosophically inconsistent as it may seem to hold passive and active strategies in the same portfolio, there's a practical case for doing so.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bausch Health Companies Inc40.74 CAD1.34
Berkshire Hathaway Inc Class B249.22 USD0.00
Galp Energia SGPS SA ADR5.82 USD2.28

About Author

Christopher Davis

Christopher Davis  Christopher Davis is Director of Manager Research at Morningstar Canada.

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