Active, Passive, and In-Between
April 20-24: Our guide for getting the best out of active, index, and strategic beta funds in your portfolio.
Active or index? For years the question has stirred an inspired, almost religious debate. But in recent times, as Vanguard has captured a remarkable 19%-plus share of the U.S. open-end mutual fund and ETF market, some may be tempted to declare the issue is settled. Indexing won.
But that would miss a couple of important points. First, among Vanguard's top 25 funds by assets are seven actively managed funds--including Medalists Vanguard Wellington (VWELX), Health Care (VGHCX), Windsor II (VWNFX), PRIMECAP (VPMCX), and Wellesley Income (VWINX)--suggesting there is more to this story than a simple preference for passive. Other critical factors, including low fees, are also playing a role. Plus, although investor money has been aggressively seeking passive funds in U.S. domestic equity, the indexing affinity is not so clear cut in other areas of the market. There is more digging to do before closing this case.
This week, Morningstar analysts, researchers, and strategists--including our director of personal finance, Christine Benz--weighed in on active and passive investing techniques, and discussed the recent crop of strategies that blend both: strategic beta funds. We outlined how to effectively evaluate active, index, and these "in-between" investments, offered suggestions on the best ways to combine these strategies in portfolios, and shared some of our favorite investment ideas.
Monday, April 20: Getting the Best of Both
Although some investors may be personally drawn to one approach or the other, it doesn't have to be an either/or decision. On Monday, learn how to compare active and index funds apples-to-apples, find a good fit for your own investing style and tendencies, and focus on the key things that matter for any type of fund.
Active and Index Funds: How Do They Really Stack Up?
Adjusting for several factors--including fees, the time period, and the composition of the benchmark versus managers' real opportunity set--impacts the comparison.
Index, Active, or Both: 8 Questions to Help You Decide
A user's guide to customizing your ratio of active and passive investments.
Active or Passive: You Have to Be Choosy
There are reasons to tilt active or passive, but provided investors are picking low-cost, proven funds, they can be successful with either or both types of investments, says Morningstar's Russ Kinnel.
Tuesday, April 21: Better Active Investing
On Tuesday, get our field guide for active investing, browse our favorite actively managed Medalist funds, and hear what Morningstar's active moat- and value-driven approach to stock investing can bring to a portfolio.
6 Questions Worth Asking About Your Active Fund
Our guide can help you make sure your actively managed funds deliver as expected.
These Gold-Rated Funds Are Truly Active
Shining the light on medalist funds that have little in common with their benchmarks.
3 Qualities Investors Need to Pick Active Management
Active management isn't for everyone, but engaged and disciplined stock investors with long time horizons can achieve good results, says Morningstar's Matt Coffina.
Wednesday, April 22: Better Passive Investing
Index funds can provide transparency, diversification, and low costs but still need to be selected thoughtfully. On Wednesday, we'll post our checklist for passive investors, a few indexing pitfalls to avoid, and a shortlist of our favorite index funds.
Morningstar's Top Core Picks for Indexers
These index funds and ETFs provide a lot of diversification at a very low cost.
5 Questions Worth Asking About Your Index Fund
Check expenses, of course, but don't neglect more subtle differences.
4 Passive-Investing Pitfalls to Avoid
Don't assume all index funds are low cost and tax-efficient, and avoid overdiversification and becoming too hands-on, says Morningstar's Mike Rawson.
Thursday, April 23: Where Active and Passive Intersect
A relatively new crop of "strategic beta" funds aims for better performance than traditional index fund by systematically selecting investments based on certain traits (or factors) besides market cap. Thursday will focus on how investors should think about these options in their portfolios, highlight some of favorite funds in the space, and discuss what this trend could mean for active managers.
6 Must-Knows About Strategic Beta Funds
What they are, where they came from, where they're going--and how to evaluate them.
Strategic Beta: Investment Fad or Opportunity?
Strategic beta funds have seen substantial inflows recently, but investors should approach them with a healthy skepticism and a keen eye on costs, says Morningstar's Ben Johnson.
Are Strategic Beta ETFs a Threat to Active Fund Managers?
Active managers will now have to demonstrate that they can outperform after deducting the influence of easily measurable factor exposures.
Friday, April 24: Roundtable Report
Get the Best Out of Active and Index Funds
In this 60-minute roundtable report, Morningstar's Russ Kinnel, Ben Johnson, John Rekenthaler, and Christine Benz dissect indexing's popularity, index versus active fund performance, and how investors can effectively blend the best of both in a portfolio.