I found this an interesting article regarding active vs. passive investing. Funds that “hug” a passive index by holding that index plus a few low conviction picks may be weeded out. Why? The fees to manage what is essentially a passive portfolio will likely outweigh any minuscule risk-adjusted return performance boost over the index itself.
Perhaps the old core (75% index) and explore (25% active picks) approach needs to be either 100% core or 100% explore. Now, how does one develop an alternative index (core) or the right number of high-conviction stocks (explore)…
Wall Street Needs More Market Indexes. Seriously.