Greenspring Advisors Private Wealth Financial Advisors and Corporate Retirement

Does Active Management Work Better In Inefficient Markets?

A commonly held belief in the investment world is that active management works better in inefficient markets where there is less information available (e.g., small-cap, international, emerging markets, etc.).  The theory usually suggests that this market inefficiency creates managers’ opportunities through superior security selection to achieve outperformance.

First, we know of no statistical or empirical data that support this commonly held belief.  Here is a discussion with Kenneth French(economics professor at Dartmouth) discussing this very topic.

In addition, if this argument were true, you would expect to see Small Cap, International, and Emerging Market managers outperform their benchmark indices due to the perceived inefficiencies in these markets.  Here is the actual data from the Mid-Year 2012 S&P Indices Versus Active Funds Scorecard (SPIVA):

https://greenspringadvisors.com/insight/does-active-mana…fficient-markets/

Interestingly, the best performing asset class against its benchmark index was large-cap US stocks.  Since most would consider this to be the most efficient asset class of the four, the argument that active management is desirable within inefficient markets is not supported by the data.

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.

Recent Insights

Behavioral Hacks for Your (Financial) New Year’s Resolutions

With the end of the year rapidly approaching, the time is once again upon us to set our New Year’s resolutions. Many of us will make our well-intentioned resolutions to get out of debt, increase our savings, or stick to a budget, only to find that we have fallen right back into our old habits by the time March rolls around. Sticking to New Year’s resolutions can be incredibly challenging, particularly when it comes to our finances. However, there are some tricks you can use to not only help you stick to your resolutions, but also set yourself and your family up for a successful financial future.

Talking Money this Holiday Season

With the fall and winter holiday season rapidly approaching, many are prepping to host their traditional family gatherings in new and creative ways in light of the COVID-19 pandemic. While the settings may be different this year, and we may be gathering virtually, one thing is unlikely to change: when family and friends gather, uncomfortable topics will come up in conversation. One of those topics is likely money and personal finances. In July of 2019, TD Ameritrade conducted a study that asked participants about their comfort levels discussing certain issues, primarily focusing on money/personal finances.
Financial chart and data with calculator and pen on wooden desk

8 Credit Building Tips for the Modern American

Here are some helpful tips to help you build and repair your financial reputation for a long-lasting impact.