Executive Summary: I've become more open to index funds over time—I'll own that. But active management still plays a central role in my IVA Portfolios as well as my personal portfolio. The hurdle is simply higher than it used to be.
“Have you given up on active management?”
That's the question several long-time IVA readers have asked lately—and it's a fair one. One reader put it roughly this way:
The newsletter used to champion actively managed funds and the managers who ran them. Now, with Dividend Growth, Health Care and others out of the Portfolios in favor of index funds, it looks like a full circle back to Jack Bogle.
Fair point. I'm more open to index funds today than I was early in my career. But I haven't thrown in the towel on active management. Not even close.
I always want to be very clear in how I think about the investment advice I give. That’s been my goal since I first began working on this newsletter and eventually took it over. So, here's how I think about what many call the active vs. passive debate.
The Case For and Against
A $100,000 investment in PRIMECAP (VPMCX) at its 1984 inception would be worth $23.3 million today. The same investment in 500 Index (VFIAX) would be worth half as much—$10.6 million.
That's the case for active management in a single data point.