Rather than focus on an “either/or” choice between active vs. passive management, we believe the question should be: “Can you identify a manager that can consistently generate alpha net of fees while controlling risk and more than compensate for the low-cost advantage of passive strategies?”
To find such a manager, we suggest first screening for these three traits: strong alpha net of fees, high information ratio, and stable team responsible for performance. Next, assess whether the manager has a time-tested investment process, the resources to formulate both top-down and bottom-up views, and its risk infrastructure.
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