Defined Benefit

The hidden risks of going passive

Passive management is often seen as a low cost, low governance way to invest. While this may be true in a narrow sense, we think it would be a mistake to believe that it is a low risk route to success or that it offers a ‘set-and-forget’ approach. We would argue that the most important investment decisions are unavoidably active and that there are hidden risks to index-based investment approaches. Moreover, there is evidence that some active managers can add value. This article looks at these and other issues that investors need to consider when deciding whether or not to go passive.