We find that all types of investors often believe in certain myths about active management. In this article, we want to look at one of the common investor myths, which is the notion that active management will outperform in so-called "less efficient markets."
It's a myth that higher active share leads to better outcomes. The reality is that the zero-sum game and the low-cost advantage apply no matter the percentage of a fund portfolio that differs from a benchmark index.
This Vanguard Group, Inc., research paper offers a quantitative framework for establishing allocation targets for a range of investors, focused on four key variables—gross alpha expectation, cost, level of active risk and active risk tolerance. The analysis shows both passive and active management can be appropriate.
This Vanguard Group, Inc., research paper reviews the investment decisions that individual investors face when building a globally diversified portfolio, explaining why broadly diversified, market-capitalization-weighted global index funds are a valuable starting point for all investors.