Active vs. Passive Debate: Give Peace a Chance

Indexing works, but the odds of picking winning active funds aren't as bad as they seem

Michael Breen 30 September, 2010 | 6:12PM
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This article originally appeared on Morningstar.com, a sister site of Morningstar.co.uk, and features data pertaining to the US funds industry.

I had thought another article about active and passive funds would be about as exciting as rearranging my sock drawer, but then I caught wind of this fracas in the user comment section of this video that my colleague Scott Burns, director of ETF analysis, conducted with index proponent Rick Ferri.

In a nutshell, Ferri says his research shows that very few active managers can beat the market over time and the probability of putting together a portfolio of five to 10 actively managed funds that will outperform a competing portfolio of index funds over a 20-year period is practically nil. Ding! That unleashed a torrent of readers' comments from both sides. Some users clearly view this as a black-and-white issue and will put forth a lot of effort trying to discredit the other side.

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Michael Breen  

Michael Breen is an associate director analyst with Morningstar.