Active vs. Passive Management

Brad Ball

21 April 2020


The battle has raged for years…a quick internet search will yield mounds of data arguing when active will or will not outperform. It seems the opinions so often reflect the vantage point of the author.  The old expression by Mark Twain seems to hold true “Figures don’t Lie, But Liars Figure”. Here we are again, right in the middle of a major selloff when “Active Management” is supposed to outperform so…how have active managers performed?

US funds led by active money managers have trailed the main indexes by 1.3 percentage points in March, according to Bernstein Research. What, you might ask? I thought active management is supposed to perform well when the market is more defensive or discriminating. As it turns out, the explanation from experts seems to be that defensive is good but not in a panic selloff which tends to still have high correlations. So, once again passive seems to be getting the best of active. This does not bode well for traditional active management where the “alpha” is driven from security selection. If security selection is fleeting or only successful over short windows of time, how can investors make intermediate or longer-term asset allocation decisions which include these strategies. 

Perhaps a different kind of active management is warranted, one that focuses on a more consistent phenomenon, the harvesting of “volatility risk premium” in options. This source of alpha is more consistent than any other commonly used factor. Using a combination of this “Alpha” source with a passive underlying equity or bond portfolio can deliver superior returns than either passive or active on a standalone basis. This dual source approach is the foundation of Liquid Strategies investment discipline. To learn more about this differentiated approach to active management go to



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The assertions and statements in this blog post are based on the opinions of the author and Liquid Strategies. The examples cited in this paper are based on hypothetical situations and should only be considered as examples of potential trading strategies. They do not take into consideration the impact that certain economic or market factors have on the decision making process. Past performance is no indication of future results. Inherent in any investment is the potential for loss. 

Brad Ball

Brad co-founded Liquid Strategies in 2013 and serves as Chief Executive Officer, Managing Member and Portfolio Manager.