Active and Passive Investing

Key Takeaways ● ● ● ● ● Sharpe's arithmetic does not doom external managers to underperformance... ...which could explain the positive average long-term alphas we document... ...but those positive average alphas may also reflect managers' reporting biases Historically, large institutions have had better active performance Dusty corners of financial markets may be more conducive to finding alpha Recent disappointment of active large-cap U.S. equity managers may reflect a bad (and good) draw in typical structural tilts more likely temporary If you go active, make sure to invest in high quality attribution and remember to be patient (AOR Source: AQR. 253/635 17

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