The Active-Passive Spectrum
Think in terms of continuity rather than conflict.
Conflict tends to be the norm in discussions about active and passive investing approaches, but it shouldn't be. While a March 2019 article in The Wall Street Journal reinforces the idea that "few rifts in the world of mutual funds are as pronounced,"  active and passive approaches exist as points along a continuum. Thinking about where individual strategies and portfolios fall on that scale rather than how they oppose each other is a more constructive way of evaluating investments.
At their core, passive strategies are rules-based approaches that aim to reproduce the results of a given market, while active strategies incorporate--to varying degrees--qualitative judgments about the ability of an investment to outperform that market. To grasp the passive-active continuum, it is helpful to distinguish between at least five different types of strategies, ranging from the most passive to genuinely active.
Alec Lucas has a position in the following securities mentioned above: AOFAX. Find out about Morningstar’s editorial policies.