The Death of Active Management Has Been Greatly Exaggerated

For the year ending December 31, 2021, passive mutual funds and ETFs reported estimated net inflows totaling $958.43 billion, compared to estimated net inflows totaling $249.91 billion for actively managed funds.

This disparity has caused some to wonder about the viability of active management, with speculation about “the end of active management as we know it.” As active managers, we clearly have an interest in the outcome of this discussion. We believe reports of the death of active management are – to quote Mark Twain – “greatly exaggerated.”

It’s actually quite easy to “beat the market” over the long term (which we define as approximately three to five years), once you understand some basic rules.

In this blog post, we discuss our process and the basis for our view that our disciplined, rules-based, low-cost and tax-efficient approach will likely beat the benchmark index over the long run. In future posts, we will address another myth: That the markets are so efficient it’s almost impossible to find mispricings and explain how to use pricing errors to outperform the index over the long term.

Our process

Our investment philosophy is anchored in behavioral finance, defined by quantitative data and refined by fundamental analysis.