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15 May 2016
Defining Active Investment Strategies

At a seminar this week I was asked to define what we mean by "active" management. Start with the alternative: passive investing or blindly following market indices is by design price- or valuation-agnostic capital allocation (given the assumption markets are generally right or "efficient"). Irrespective of how overvalued or undervalued an asset class may be, the passive portfolio accepts exposure to it.

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17 May 2016
Fixed-Income Performance Puzzle

In theory the most attractive solution to mitigating these hazards is focusing portfolios on "active" strategies that produce bona fide "alpha": that is, risk-adjusted excess returns that are unrelated to "beta" or the day-to-day movements in mispriced markets as represented by "passive" indices (the ASX/S&P200, for example). This is akin to finding a very cheap house – perhaps offered by a vendor who has to sell quickly because he or she has committed elsewhere—that rewards you with capital gains that have nothing to do with general house price inflation.

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