Hi everyone, I’ve been diving into the concept of passive management and am confused about its definition.
My Understanding:
From what I’ve gathered, passive management usually involves replicating the performance of a specific market index, such as the S&P 500, by investing in the same securities in the same proportions. The goal is to mirror the index's returns rather than attempt to outperform it. For example, an ETF that tracks the S&P 500 by holding the same stocks in the same proportions as the index itself fits this definition.
However, I’ve come across target-date funds and factor-based strategies (e.g., low volatility, dividend growth) which I view as passive as well since they do not involve active buying and selling to outperform the market. These strategies still seem to follow rules-based approaches but don’t necessarily track a specific index directly.
This resulted in me thinking: Any management following a rule-based strategy with minimal active management can qualify as passive.
My Question:
Given that the Bogleheads Wiki defines passive management as tracking an index or portfolio without trying to outperform it, I’m curious:
Sources:
Bogleheads Wiki Passive Management definition: https://www.bogleheads.org/wiki/Passive_management
My Understanding:
From what I’ve gathered, passive management usually involves replicating the performance of a specific market index, such as the S&P 500, by investing in the same securities in the same proportions. The goal is to mirror the index's returns rather than attempt to outperform it. For example, an ETF that tracks the S&P 500 by holding the same stocks in the same proportions as the index itself fits this definition.
However, I’ve come across target-date funds and factor-based strategies (e.g., low volatility, dividend growth) which I view as passive as well since they do not involve active buying and selling to outperform the market. These strategies still seem to follow rules-based approaches but don’t necessarily track a specific index directly.
This resulted in me thinking: Any management following a rule-based strategy with minimal active management can qualify as passive.
My Question:
Given that the Bogleheads Wiki defines passive management as tracking an index or portfolio without trying to outperform it, I’m curious:
- Are strategies like target-date funds and factor-based investing truly part of passive management, or do they fall outside the strictest interpretation of the term like in https://www.robeco.com/files/docm/docu- ... global.pdf on page 11?
- Is it possible to view these strategies as passive, or should they always be categorized differently since they don’t follow the classic definition of index tracking?
- Based on the answers above how would you define passive management then (unless you say that passive Managment is always about tracking an index)?
Sources:
Bogleheads Wiki Passive Management definition: https://www.bogleheads.org/wiki/Passive_management
Statistics: Posted by InvestementBear — Wed Nov 27, 2024 6:45 am — Replies 3 — Views 136