“There’s no universal case against active and there’s no universal case for passive,” according to Chris Tidmore, senior investment strategist for Vanguard Investment Strategy Group.
Tidmore spoke on a panel at the Envestnet Advisor Summit on Thursday, along with Dr. C. Thomas Howard, CEO and director of research for AthenaInvest, and Gary Miller, founder of Frontier Asset Management.
A January Morningstar report found that passive equity funds brought in nearly $505 billion in 2016, while active funds lost over $340 billion.
Tidmore said that the flows out of active products into passive ones hides another factor. “It’s not an active-passive” issue, he said; “it’s a high-cost-low-cost” issue.
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He said, “Most of the flows that came out of high-cost products, it just happened to be that high-cost products were active products.”
Tidmore referred to Dunn’s Law, which says that “the purest way to invest” in a market segment that is performing well is through an index product. “Anyone who’s active is playing outside that space.”
Miller, whose firm is “pretty agnostic” on the active-passive debate, said that active managers will underperform passive managers due to the difference in expenses.