WSJ: Active or passive? Do today’s fund managers face an insurmountable challenge in beating quantitative systems?
MR. SNOWBALL: “Passive” doesn’t exist. The closest we come to it is Voya Corporate Leaders Trust (LEXCX). Otherwise, it’s a fantasy woven by marketers and advisers. Index funds represent portfolios of stocks selected by flawed, conflicted and occasionally dunderheaded human beings. The Dow and S&P 500 are both good examples of portfolio by committee.
I suspect a better dichotomy is this: disciplined, cost-effective portfolios versus undisciplined, cost-maximizing ones. Many but not all passive products fall in the former. Many but not all active products fall in the latter. Those observations underlie our conclusion that 80% of all funds, active and passive, could vanish without any loss to anyone other than their sponsors.
Professor David Snowball of the Mutual Fund Observer is on my list of favorite people I haven’t met yet. His monthly MFO issues should be required reading for all serious professional investors and those interested in the latest developments within our business. Here’s November’s by the way.
Anyway, the unflinchingly honest quote above is from my pal Ari Weinberg’s new profile and interview with Snowball at the Wall Street Journal. Hit the link and be enlightened.