The cheeky title and the fine image notwithstanding, please know that this is a note related to investing, specifically active and passive investing approaches.
For those not familiar, active investing aims to outperform a specific benchmark (e.g. a fixed hurdle rate or the performance of a typical mutual fund) while passive investing aims to simply track one (e.g. the market index typically reflected by an ETF).
Those familiar with these investing approaches know that each approach has its share of ardent proponents and followers.
To be clear, I am not here to participate in the active versus passive debate. Rather, I am here to suggest that a simple approach blending both active and passive investing works better for prudent global investors.
To me, the key question is not which one is better but rather how to blend merits of both into a superior portfolio design. I share a few more thoughts and guidelines for your consideration.
Active Investing
Active investing has a legitimate place in the investing universe. In general, active investing works well where markets can be reasonably inefficient and largely inaccessible to the typical investor.
For example, investing in small-cap equities in emerging markets like India, buying real estate in frontier markets like Cyprus, or investing in distressed credit internationally may be virtually impossible via passive investing.
Passive Investing
Passive investing too has a legitimate place in the investing universe. In general, passive investing works well where markets are reasonably efficient and largely accessible to the typical investor.
For example, adding exposure to a particular region’s asset classes such as US large-cap equities or a particular investing strategy across the world such as global commodities may be inefficient via active investing.
Since I believe both active and passive investing have their applications in the investing universe, I find the active versus passive debate futile. To us at Mash Capital, blending both active and passive investing management enables sound diversification, which leads to a superior portfolio design. This blended approach to investing is a cornerstone of our Global Multi-Asset strategy.
To conclude, perhaps at the risk of oversimplification, picture active investing as a fine wine and passive investing as your staple beer. Assuming you enjoy your alcohol, common sense suggests it doesn't hurt to enjoy both. Just know which one suits you when, and in what quantity. Cheers.
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