Which is Better: Active or Passive Management ETFs?
Well, I think it kind of brings us into this whole idea of active versus passive and the debate of active passive. Avantis is just like dimensional, a really good example where I would not consider them true active bottom-up stock selection, fundamental analysis. It's a quant strategy, but being implemented on an active basis, and I think that's the key I want to focus in on.
One of the reasons I'm so excited about active management at the appropriate cost, you know, where you're still competing on fees. You're not charging 100 basis points plus on these products, but you're charging a reasonable fee, is because one of my biggest knocks on factor passive, so like your more rigid factor strategies that are rebalancing on a quarterly basis or a monthly basis or an annual basis is how do you implement that without moving the markets, right?
And we've seen this with some really big pure passive ETFs where they have to rebalance out of a security into a new security all at once. And in doing that, the market's not dumb. They see it coming. They get in front of it and it hurts the performance of the index, right? So it's always like, you know, why the back test did so well. Why when I put it into action did it not do as well? And part of that is because you have to actually implement an index is not investable. You actually have to implement this.
And what active does I think in a lot of degrees is it bridges that gap between these hard pressed rebalances that can cause bad execution and hurt your performance drag on it to being like look we're doing a similar strategy, similar screens to your pure passive product, but we're implementing it all the time. We're making the choice on when to hit that buy button, when to hit that sell button. We can do it over three months if we want to. We can't, we're not telling the market what we're doing.
And I think in my mind when I look at active, I think of active as factor strategies generally to the degree to which they're doing it varies significantly. Like Avantis is very small, whereas some other active is very large. But the idea of the implementation, I think is really interesting and I think Avantis and Dimensional because they are quant-based strategies really prove that out. And so my mystery category is implementation active versus passive and I give the win to ABDE for how well they're able to implement their strategies without that rigid contracts of quarterly rebalances or annual rebalances.
