Future Returns: There’s a reason to engage in passive investing even as alternatives and other options begin to outperform
It’s been a long time since active money managers performed better than passively constructed investment vehicles such as exchange-traded funds, but the tide may be turning.
For wealthy investors, however, the right way to think about investments isn’t “active or passive, but active and passive,” says Warren Gibbon, chief investment officer for Boston Family Advisors, or BFA, which establishes and operates single-family offices for investors and entrepreneurs. “Alternatives are the epitome of active management,” says Amanda Agati, chief investment officer for PNC Financial Services Asset Management Group. “No two are alike, and they’re notoriously difficult to benchmark. By definition, if you’re going into alts, you’re a believer in active management.”
Though Agati and her team aren’t trying to time the market, she is a believer that at different moments in the business cycle, active and passive strategies have their ups and downs. For example, PNC research shows that the year prior to a recession and the years in which recessions occur tend to be the best-performing years to invest in alternatives, Agati says. The bank’s internal forecast is for a mild recession to begin in the first half of 2024.
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