Can Active Fund Managers Be Replaced with Exchange Traded Funds?

Global Journal of Business Research, v. 13 (2) 95-104, 2019

10 Pages Posted: 2 Nov 2019

Date Written: 2019

Abstract

There is a long-standing debate about whether active investment management can outperform a passive benchmark, usually expressed as an index. The debate is usually considered on the manager-level, comparing the active management return of a particular manager against an appropriate index. This paper looks at the topic on a portfolio level. Using the average asset allocation of a large, private foundation, this paper replaces managers with exchange traded funds that invest in a similar strategy. For 2017 the average portfolio return of the average, large private foundation (the actively managed portfolio) produced an average return of 14.3% compared to the portfolio comprised of exchange traded funds (the passively managed portfolio) produced a return of 11.9%. The active portfolio outperformed the exchange traded fund portfolio across every broad asset class.

Keywords: Active Investing, Passive Investing, ETFs, Active Versus Passive Investing

JEL Classification: G11

Suggested Citation

Haber, Jeffry, Can Active Fund Managers Be Replaced with Exchange Traded Funds? (2019). Global Journal of Business Research, v. 13 (2) 95-104, 2019. Available at SSRN: https://ssrn.com/abstract=3460810

Jeffry Haber (Contact Author)

Iona College ( email )

715 North Avenue
New Rochelle, NY 10801
United States

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