The trend toward passive investment management is growing at a high pace. Interestingly, the outperforming active funds are losing significant assets while passive funds inflows are growing even larger.
This represents a significant advantage for active management. Passive does not attempt to analyze securities for value. While passive has its place, too much can be a big problem. With much less analysis, security's prices will not correctly reflect values. The key is to have the staying power to hold on until this passive phase passes. A study of history shows many phases come and go.
The securities industry only has themselves to blame for the move to passive. For too long, fees charged by most institutions have been excessive for the management value purveyed. Those who adjust their fees to be commensurate with the value provided will be the growing and surviving industry players.
