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May 29, 2015 at 09:48 AM
I hope everyone enjoyed my first article in the series—Who Wins ‘Passive vs. Active’ Institutional Debate? Pt. 1: U.S. Large Cap Blend—on this highly debated subject matter. However, before we dive into the Large Cap Growth space analysis, let me respond to a few comments relative to my first article.
These articles are derived from a simple database screening, with the goal of creating a pure ‘apples to apples’ comparison between the institutional-only active vs. index mutual fund space. Fund survivorship is a reasonable concern; however, for me to include non-survivorship, it would also be necessary to include all fund start-ups for the trailing five- and 10-year return ranges. Furthermore, survivorship of a fund could have more characteristics such as fund company marketing issues, fund company investment category change, or just a simple inconsistent style box drift, excluding it from the screening, etc.
Therefore, in my opinion, those approachess—while valid—take us down a road of continuously comparing apples with oranges. Same thing with tax efficiency, as that issue really is a secondary concern, depending on whether the investable assets are qualified versus non-qualified. Also, as far as the turnover-related questions, those are moot, as the Morningstar net return numbers are defined/derived from the funds’ NAV, which should include all expenses of turnover.
Lastly, I’d urge readers to look at the data objectively, rather than from a biased view, as all investments—regardless of active or index—are not created equal.
Therefore, as in my first article, I’ve chosen to make the comparison a more structured screening (just as any investment analysis or professionally managed account should be handled within the advisory world).
Keep in mind that I’m using Morningstar Direct as my source of screening, testing and research on return/expense data points.
