From Beta to Alpha: Why It Will Pay to Be the Last Active Investor Standing

MARCH 23, 2018

What You Need to Know

Passive equity strategies have seen massive inflows over the last decade, in part because of active management’s struggles. But the pendulum seems to be swinging back toward active today—and leaving active out of the equation could be leaving money on the table.

Of all the debates in capital markets today, there probably isn’t one that’s more heated than the roles of active and passive management in the years ahead. At a high level, we believe both approaches play an important role. But there’s a story within the story—and it has to be understood for portfolio decisions to be fully informed.

The Backstory: How We Got Here

First, let’s look at the sweeping forces that brought us to where we are today. In the early 1980s, baby boomers began to enter their peak earning years. And they were fortunate to step into an environment that would unleash the biggest wind-aided equity bull market in history.

From 1981 through 1999, this massive equity run featured over 17% annualized returns from the S&P 500 ( Display below ). It combined with growing wealth among baby boomers to produce a winning formula for investors. But as the oldest boomers began to approach their retirement years, they were hit with two major market crises—the bursting of the tech bubble and the global financial crisis.

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