Some 30 years ago, the term ‘active investment management’ was coined to distinguish funds managed using traditional approaches from index funds. Since then, the traditional sector has prospered and the investment management businesses that supply traditional products generate tens of billions of dollars of profits.
But there is a problem. The traditional sector offers an indifferent value proposition to the investors. On average, traditional investment products under perform their index benchmarks. Also, finding a traditional product that can confidently be expected to outperform its index benchmark has been likened to looking for a needle in a haystack.