Russell reveals active vs passive investing research

Russell Investments research has attempted to broaden the active versus passive investing debate, outlining five key factors investors should consider when deciding which approach to take.

“We take issue with the conduct of the active versus passive debate, which has made the mistake of framing the issue exclusively in terms of whether active management can outperform an index,” said Don Ezra, Russell’s co-chairman of global consulting and chairman of the Russell Global Knowledge Management Group.

“Ultimately the question of whether to choose some alternative to passive investing should not be approached as a single, all-encompassing decision. The choice is likely to vary across asset classes, investors and even time,” Ezra added.

The research identified five factors that might cause an investor to seek an alternative to a passive approach. These included: no readily replicable index being available; the passive index being at odds with the investor’s objectives; the standard of the passive index being inefficiently constructed; the investment environment favouring active management in general; and whether or not a skilled managers can be identified.

Russell chief investment officer, Pete Gunning, said the new research offers an excellent framework. He added that investors need to understand how their unique objectives and circumstances figure into determining the optimal investment approach.