RT Journal Article
SR Electronic
T1 An Equity Portfolio Framework for Combining<br/>Active Management and Index-Based Implementation
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 38
OP 44
DO 10.3905/jii.2014.5.1.038
VO 5
IS 1
A1 Michael W. Crook
YR 2014
UL https://pm-research.com/content/5/1/38.abstract
AB The proliferation of liquid, transparent, and inexpensive index-based implementation means that nearly all types of investors, individual and institutional, face a persistent portfolio implementation question regarding the allocation between active managers and index-based strategies.Placing active risk from active fund management in the same framework of uncertainty that asset allocators utilize for other portfolio decisions brings to the active versus passive debate a surprising and enlightening answer that does not match typical discourse on the matter. Instead of a binary, “all or none” answer, reasonable (and even optimistic or pessimistic) expectations for active management imply a balanced implementation approach. Only extreme assumptions (e.g., very positive or negative levels of active return, very short or long time horizons) indicate a binary choice.TOPICS: Mutual funds/passive investing/indexing, portfolio construction, equity portfolio management