The Value of Active Management
The debate over whether or not the higher fees earned by active portfolio managers are justified by a long term ability to earn market beating returns is a subject of endless debate in the investment community, one which has become nearly religious in its orientation.
While there is no doubt that superior investment managers like Warren Buffet and Mario Gabelli exist, it is also true that these folks are both rare and difficult to identify on a going forward basis. Past performance as they say, is no guarantee of future results.
Rex Sinquefield, a proponent of passive investment management at Dimensional Fund Advisors, once told a former boss that he would have to outperform the stock market for a period of 400 years to prove that his returns weren’t a statistical fluke. My boss simply rolled his eyes and chuckled.
At the same time, I’ve not yet met an advocate for passive investment management that doesn’t charge for their own portfolio management services. Unless you “do it yourself”, charging any fee for advising a portfolio of index based products will most assuredly earn you returns that lag those markets on a comparable net of fees basis. At least active management has a chance.
Since its inception just over six years ago, the Broadleaf Growth Equity Portfolio has outperfomed the S&P 500 by roughly 2.5% annually on a net of fees basis. (See important performance disclosures.
) While this margin of annual outperformance might not seem like much, the cumulative difference equates to about 20% over the six plus year time period. In other words, had you put $100k with us in 2005, you’d have about $20k more today than if you’d have been in the S&P 500, net of fees. Over even longer periods of time, a seemingly small margin of outperformance can add up to some very serious numbers, thanks to the miracle of compounding.
While I can’t guarantee that we will outperform the S&P 500 over the long haul on a net of fees basis and most assuredly will experience periods in which we do not, the objective remains our goal.