The Active-Passive Debate: Bear Market Performance

Sponsored By Vanguard

Topics:

Budgeting & Planning > Planning , Forecasting , Strategy

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Abstract:

We often hear of the benefits active equity management can provide during periods of market stress. However, when related data is examined in detail, we find little evidence to support the theoretical benefits of active management during periods of market stressýin fact, active managers have not consistently delivered superior performance relative to a benchmark during such periods. In this research, we analyze the performance of U.S.-domiciled funds during U.S. bear markets as well as the performance of European- and offshore-domiciled funds during European bear markets. Specifically, we first evaluate the performance of active funds during each bear market. Next, we evaluate the sustainability of prior winners and the performance of those winners in subsequent bull markets. Finally, we examine style-box performance, acknowledging that the performance of certain market segments relative to the broad market may contribute more toward outperformance than manager skill.

DETAILS

Sponsored by: Vanguard

Released: April 28, 2009

Length: 11 pages

Format: PDF (125 kb)

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