29 Sep 2025

The Fund Performed Fine. Investors, Not So Much

For several years, Morningstar has released its annual Mind the Gap study, which highlights the difference between what a fund returns and the returns investors actually realize. The study underscores a familiar struggle: investors chase performance—jumping into funds after the best gains have passed, or bailing out during a slump only to miss the rebound. The penalty for this behavior is steeper than many realize. Over the 10 years ending… Read More

By David Ott Tags: , , , , , ,
22 Sep 2025

We Need New Words for an Age-Old Debate

Perhaps one of the longest-running debates in the investment industry is the so-called “active vs. passive” debate. Most people understand it this way: Will active managers who pick stocks (or bonds) fare better than index funds? The industry of stock-pickers says yes; the index fund companies say no way. The name “passive” is just terrible. It sounds like nobody is doing anything, when in fact index investing is a reflection… Read More

By David Ott Tags: , , , , , ,
9 Oct 2023

Active Passive Word Play

I think that most people in the investment business have at one point, or another wrestled with the question about whether the market is efficient and what you should do about it, regardless of your answer. In simple terms, an efficient market quickly incorporates news and information into prices. It’s easy to find examples of market inefficiency, like when companies added .com to their name in the late 1990s and… Read More

By David Ott Tags: , , , , , , , , , ,
10 Jul 2017

It’s Not an Index Fund

Precision in language matters, though you wouldn’t know it from reading newspaper headlines (Gator Attacks Puzzle Experts).  It may seem like distinction without a difference, but I want to make a distinction today between passively managed funds and index funds. One of the biggest debates amongst investors is the old ‘active/passive’ debate.  I’ve spilled plenty of digital ink on this subject already (click here, here and here), but the basic… Read More

By David Ott Tags: , , ,
11 Mar 2016

Active Funds Still Struggle

Every six months, Standard & Poor’s does an analysis of how active funds compare to S&P indexes and it’s been a while since I’ve reported on the results.  Unfortunately for the actively managed funds community, things haven’t gotten any better since my last update. The report offers many details and if you want to look at the entire report, click here.  I think that if you aren’t going to look at… Read More

By David Ott Tags: ,
5 Oct 2015

Active or Passive? Yes, Exactly.

The Wall Street Journal ran an interesting article over the weekend entitled, ‘Three Things to Know About Smart Beta.’  You can find the article here, but you may need a subscription. Before diving into the article, the first thing you should know is that smart beta is the marketing term for tilting your portfolio towards factors like size, value, momentum and quality. We call this factor investing, but there are tons of names in the market… Read More

By David Ott Tags:
24 Apr 2015

New Thoughts on the Active Passive Debate

Wednesday night, I was reading a new paper by some of the principles at AQR titled, ‘Fact, Fiction and Value Investing.’  You can find a copy here and this follows on a paper that they wrote last year called, ‘Fact, Fiction and Momentum Investing (which you can find here).’ Now that you’ve read our primers on value and momentum investing, no further explanation is required, although if you want a refresher, you… Read More

By David Ott Tags: ,
6 Apr 2015

A Test Too Tough

Just in the last 30 days, Jeff Sommer for the New York Times has written two articles about the persistence of performance among actively managed mutual funds. On March 14, in an article titled, ‘How Many Mutual Funds Routinely Rout the Market? Zero,’ Sommer wrote that not a single actively managed mutual fund had consistently beaten the market since the bull market was born in 2009. Using data from the… Read More

By David Ott Tags:
24 Mar 2015

Fund Manager Beats Market for 40 Years

The most recent issue of Bloomberg Markets magazine featured a photo of a stately gentleman with a blazing headline that read, ‘This Fund Manager Has Consistently Beaten the S&P 500 for 40 Years.’ The article highlights the performance of The Nicholas Fund (ticker: NICSX), a $3.6 billion mutual fund run by Albert Nicholas, who started the fund in 1969.  The article says that he has outperformed the S&P 500 by… Read More

By David Ott Tags:
29 Dec 2014

Beating the Index

One of the complaints that I hear about index funds is that their returns are average and buying them guarantees mediocre returns. Not so! If that were true, you would expect that the returns for the Vanguard S&P 500 index fund (VFINX) would be around the 50th percentile when measured against its peer group. The actual percentile might shift around some from year-to-year, in the 40th percentile one year and… Read More

By David Ott Tags: ,