The active-passive portfolio

It’s important to evaluate different strategies in terms of a continuum, not conflict

Alec Lucas, Ph.D. 13 September, 2019 | 1:13AM

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Conflict tends to be the norm in discussions about active and passive investing approaches, but it shouldn't be. [Tweet this] While a March 2019 article in The Wall Street Journal reinforces the idea that "few rifts in the world of mutual funds are as pronounced," active and passive approaches exist as points along a continuum. Thinking about where individual strategies and portfolios fall on that scale rather than how they oppose each other is a more constructive way of evaluating investments.

At their core, passive strategies are rules-based approaches that aim to reproduce the results of a given market, while active strategies incorporate--to varying degrees--qualitative judgments about the ability of an investment to outperform that market. To grasp the passive-active continuum, it is helpful to distinguish between at least five different types of strategies, ranging from the most passive to genuinely active.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Beutel Goodman Fundamental Cdn Eq Cl F9.71 CAD3.83
Canoe Global Equity F48.70 CAD-1.75
Franklin LibertyQ Emerging Markets ETF22.26 USD1.25
Horizons S&P/TSX 60 ETF31.42 CAD2.47
iShares S&P/TSX Capped Energy ETF4.42 CAD14.73
TD Canadian Equity - F14.67 CAD3.84

About Author

Alec Lucas, Ph.D.

Alec Lucas, Ph.D.  Alec Lucas is a senior manager research analyst for Morningstar.