By doing this, we reduce a significant hurdle
faced by active managers in generating better risk - adjusted returns than passive index strategies.
But this is still tactical asset allocation, a strategy commonly
employed by active managers, and one that is of dubious value to investors.
First, in the case of actively managed funds, it can be evidence of superior skills being brought into
play by an active manager.
But so too should all advisors have an understanding of ETFs, and they should have some exposure to the research highlighting the significant obstacles
faced by active managers.
I never meant to make you cry And though I know I shouldn't call It just reminds us of the cost Of everything we've lost Bad timing, that's all — Bad Timing, Blue Rodeo One of the promises
made by active managers is that they can move to cash before the markets tank and then -LSB-...]
Now, here's the logical trick: since the sum - total of active and passive investments matches the market, the proportion allocated to any market
segment by active managers must, in aggregate, equal the allocation made by passive investors.
Many point to underperformance
by active managers in the past few years as proof that the days of the stock picker are numbered.
For example, Frazzini, Israel, and Moskowitz (2012) analyze trading costs associated with an actual implementation of a momentum
strategy by an active manager.
In addition, using passively managed vehicles avoids the risks of unexpected actions and concentrated (undiversified) positions
taken by active managers.
One of the promises
made by active managers is that they can move to cash before the markets tank and then get reinvested before they recover.