Investors Need to Mix Active and Passive, Raise Foreign Allocations

The battle over active versus passive management is overdone. The real fight for investors is to achieve their goals, said Tom Hoops, executive vice president at Legg Mason.
Author:
Publish date:

The battle over active versus passive management is overdone. The real fight for investors is to achieve their goals, said Tom Hoops, executive vice president at Legg Mason. 'Well diversified portfolios should have a little of both, active and passive,' said Hoops. 'We are primarily an active manager through our seven affiliates. Performance across the Legg platform has been strong and will continue to be strong, but I think all the one versus the other is a little overblown.' Passive, or index investing, has significantly outperformed active over the past decade in both performance and fund flows. Hoops said that the success of index investing and the rise of exchange traded funds has given rise to extremely specific vehicles like smart beta funds. 'I think clients and their advisors are starting to realize that there are some inherent problems and biases when you invest in a strategy that is market-cap weighted,' said Hoops. 'So what you have now seen is a plethora of firms come out with ways to do beta better.' Hoops also said the drive to beat benchmarks like the S&P 500 often lead investors down the wrong path and away from their ultimate goals whether it be cash flow or a secure retirement.