Much has been written about the flow of assets from active to passive strategies and the relevance of fundamental decision-making versus low cost investment options. However, typically articles only focus on relative performance and cost. The other side of the ledger, relative risk, is often forgotten.
Without incorporating risk into investors’ selection of strategies assumes that portfolio risk is the same for all active managers and their passive counterparts. As we all know, this is certainly not the case. However, the media would lead investors to believe that it is all about performance and not the assessment of relative risk to achieve that result.
At Harborside, we believe evaluating risk-adjusted returns provides the most informed decision factor. With investors selecting among thousands of mutual funds, it should not be forgotten that many active managers have exemplary risk-adjusted returns that provide significant value to investors’ portfolios. Performance should not be the only overriding factor but the path to get there must be considered and marketed accordingly.