Media Center FAFN Leadership

There has been a long-running and lively debate in the world of money management about which is the better strategy over the long run: active fund managers or passive invest strategies. In 2009, actively-managed mutual funds performed better than index funds for the second consecutive year on average.

Active managers try to pick only the very “best” stocks for their portfolios, often make frequent changes to the composition of their portfolios, and have to make many right decisions at the right time in order to out-perform their market-neutral benchmarks. Index fund managers, by contrast, generally own every stock in the index their fund is designed to track and only change the composition of the fund when the index they track changes (“passive management”).

Partisans of both active and passive management can point to similar long-term studies showing that their favorite management style is superior. The First Affirmative Investment Committee tends to believe that both have attractive features, and we generally recommend portfolios that blend active and passive management.