In general, active mangers have a hard time beating indices or comparable index funds. Actively managed funds cost more, too, because there is more overhead to account for.
“Over the long term, taking into consideration costs and taxes, active management does not outperform indexed products,” said Russell D. Francis, an advisor with Portland Fixed Income Specialists in Beaverton, Ore.
Investors should not write off one style or the other, since active strategies can be beneficial for some areas of the market, and passive investing serves others. For example, an ETF can be used as a core holding in a portfolio, while actively managed funds can enhance the strategy. Active management has been known to be useful in niche areas of the market, where thin trading and lack of attention can leave a bargain concealed, reports Brown.
“I think there are areas of the market that active management may be beneficial,” Matthew Reiner, a financial advisor with Capital Investment Advisors of Atlanta, said. Others favor active management for high-yield bonds, foreign stocks or small-company stocks.
Tisha Guerrero contributed to this article.