Morningstar Hosts a Passive Vs. Active Debate

Morningstar this week is running a series debating the merits of passive investing vs. active investing.

Passively-managed investing is the strategy of capturing the market’s returns by holding a benchmark for a specific asset class. This is typically achieved with an index fund. Active investing attempts to earn a return better than the market benchmark. It does this by actively buying and selling stocks and bonds it thinks will outperform the benchmark.

Considering the mutual fund industry is based on actively managed investing, with a small percentage of passive funds, while 99% of the ETFs are passive investments, this debate is pretty basic to what kind of funds you want do hold in a portfolio. Building a portfolio with ETF is a tacit acceptance of the many benefits of passive over active.

Morningstar announced today that this week its analysts and strategists–including director of personal finance Christine Benz–will weigh in on active and passive investing techniques. They will clarify the state of the debate, look at ways to optimize both active and passive approaches, and offer suggestions on the best ways to combine the two. On Friday, several Morningstar experts will sit down for a live video roundtable discussion on getting the most out of active and passive strategies.

Here is the week’s lineup that can be accessed on Morningstar.com. The most relevant for ETF investors is on Wednesday, when Morningstar’s ETF team will look at how to pick the best passive funds and the hidden costs of indexing.

Monday | September 12: Clarity on the Active/Passive Divide

Hear from Morningstar’s Don Phillips, Russ Kinnel, and Christine Benz as they explore the pros and cons of using an active or a passive strategy.

Active or Passive Strategies: How to Choose?: 
Decide what attributes you value most, then go from there.

Silly Season for the Active/Passive Debate
: Here are five of the goofiest arguments for and against indexing.

Index Versus Active: What the Data Say
: Focusing on low expenses helps investors succeed, regardless of whether they take the active or passive route.

Indexing Extremists
: It’s time for the leaders of the index movement to step up and reclaim the intellectual honesty that their early supporters advocated, says Morningstar’s president of fund research Don Phillips.

The Odds Favor Index Investors: 
A low-cost index portfolio has the greatest probability for meeting long-term financial goals, says Rick Ferri.

From the Archive: What the Data Say on Active vs. Passive Funds: 
Morningstar’s John Rekenthaler on the percent of active managers who have outperformed, if active is really better in some categories, and the strongest predictors of success. (video)

Tuesday | September 13: Better Active Investing

The active investment strategy gets first treatment with Christine Benz sharing her favorite active funds and discuss how to build a portfolio of strong managers.

Wednesday | September 14: Better Passive Investing

Morningstar’s ETF team will look at how to pick the best passive funds and examine some of the hidden costs of indexing. Christine Benz will share her favorite index funds and offer five pitfalls passive investors should avoid.

Thursday | September 15: Active/Passive: Why You Don’t Have to Choose

Choosing between active and passive investments is not an all-or-nothing proposition. On Thursday, Morningstar will look at combining the best of both worlds in your portfolio.

Friday | September 16: Roundtable–Getting the Most Out of Active and Passive Strategies

Morningstar’s Christine Benz, John Rekenthaler, Scott Burns, and Michael Breen discuss the benefits and drawbacks of various active and passive strategies.

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