In 2006, the Canada Pension Plan Investment Board announced it had switched from a “passive” to “active” investment strategy. Its 2019 annual report estimates the fund’s $392 billion portfolio is $29 billion larger than it would have been had it stuck with passive management. And yet the PBO’s “baseline” case, the source of its claimed 1.2 per cent annual premium for active management, is measured against a passively managed portfolio with 70 per cent equities. Assuming instead that they were the same as under passive management would greatly overstate the CPPIB’s net returns, and exaggerate any premium to active management. The case against active management, amply supported in the research — at least two-thirds of investment managers in any given year underperform the relevant benchmark — is not that nobody ever beats the market.

Source: National Post June 12, 2019 23:03 UTC