To Inform:

At this week’s Portfolios at Panera, TJG’s Portfolio Manager, Aaron Filbeck, led our discussion that focused on one dimension of the portfolio construction process: active vs. passive management in The Joseph Group’s objective-based portfolios.

As a quick refresher, the primary objective of a passive manager is to replicate the performance of an index, such as the S&P 500 or the Bloomberg Barclays Aggregate Bond Index, as closely and cheaply as possible. A passive manager doesn’t favor or disfavor any of the stocks or bonds but instead owns all of them at their respective weights in the index. The primary objective of an active manager, on the other hand, is to outperform an index by taking more concentrated positions in stocks or bonds they like and potentially ignoring the ones they don’t like.

The discussion at this session revolved around: what is The Joseph Group’s stance on using active management vs. passive management? The punchline is both, but it really depends on which asset class!

• High Quality Fixed Income:  IT DEPENDS – we may use active managers, passive managers, or both, but the decision will depend on the interest rate and credit environment.
• Credit:  USUALLY ACTIVE – we favor active managers in the high yield (or “junk” bonds) space.
• Global Stocks:  BOTH – we typically use both active and passive managers because relative outperformance can depend on what’s happening in the stock market.
• Real Assets:  IT DEPENDS – we may use both active and passive managers, but it really depends on the sub-asset class (commodities = active, global real estate and/or global infrastructure = both)
• Dynamic:  ACTIVE – by nature of the asset class, we use active management.

We have written a 3-4 page whitepaper on this subject, that we passed out to our audience at Portfolios at Panera. If you are interested in reading more about this subject, please click here. We hope to see you at the next Portfolios at Panera!