Russell Investments has released new research in an attempt to broaden the active versus passive investing debate, outlining five key factors investors should consider when deciding which approach to take.
“We take issue with the conduct of the active versus passive debate, which has made the mistake of framing the issue exclusively in terms of whether active management can outperform an index,” says Don Ezra, Russell’s co-chairman of global consulting and chairman of the Russell Global Knowledge Management Group. “Ultimately, the question of whether to choose some alternative to passive investing should not be approached as a single, all-encompassing decision. The choice is likely to vary across asset classes, investors and even time.”
According to the company’s research, there are five factors that might cause an investor to seek an alternative to a passive approach. These include:
- no readily replicable index being available;
- the passive index being at odds with the investor’s objectives;
- the standard of the passive index being inefficiently constructed;
- the investment environment favouring active management in general; and
- whether or not a skilled manager could be identified.
Russell chief investment officer Pete Gunning said the new research offers an excellent framework for the investment community to consider. “Active versus passive is a constant topic of debate, and investors need to understand how their unique objectives and circumstances figure into determining the optimal investment approach.”