by bobby l. hickman
MARKET TALK
INTERVIEW
active vs. passive
FUND MANAGEMENT debate intensifies
T
he debate over actively managed funds versus passive investments has raged for years, but recent market fluctuations have added a new twist. According to the S&P Indices Versus Active Scorecard (SPIVA) released in mid-2020, indexed (passively managed) funds returned higher returns over each of the last 10 years. Although actively managed funds posted what SPIVA termed “excellent absolute returns”, most active funds were 52 / ADVISORS MAGAZINE
unable to outperform their benchmarks. But remember, we experienced the longest “bull market” during that same period. These averages can be misleading. Both types of strategies have their advantages for individual investors. While low-fee indexed funds mimic index performance and appeal to the “cost conscious investor”, actively managed investments have the potential to outperform the market during periods of market volatility. Often, SEPT 2020
inexperienced, “do-ityourself”, investors look to passive investments such as indexed funds or exchanged traded funds (ETFs) without really understanding how they work, or what the underlying securities are that comprise the index, according to Thomas F. Scuccimarra, MBA, president and CEO of Thomas Wealth Advisors in the metropolitan New York City area. “Before the pandemic, everyone thought than an index fund, such as the S&P500, was all they needed in their retirement portfolios” Scuccimarra said. That’s understandable seeing that we’ve experienced
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AN INVESTMENT IN KNOWLEDGE PAYS THE BEST INTEREST
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market turbulence may boost alpha strategies
a 9.5 year “bull market” the longest in history. “All changed with the COVID pandemic. From February 10th to March 16th the market plunged 32%. Put that into context, a third of your retirement investment, one that took over 25 to 30 years to build was lost almost overnight. If you just hang on to the old methodology of how you invested before – basically buy, hold, and hope – you may see another calamity in the marketplace if there is a significant second wave.” A true apples-toapples comparison of actively vs. passively managed investments requires more than simply looking at “averages” and oneyear returns. Scuccimarra advises clients to do the research and find those active managers that have outperformed their benchmark for, not one year, but five and
- BENJAMIN FRANKLIN
