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I've always wondered if there's a much differentiation between active and passive as is suggested. The main differences are: 1. list of stocks changes less fre

by pbreit 8y ago

I've always wondered if there's a much differentiation between active and passive as is suggested. The main differences are: 1. list of stocks changes less frequently 2. the list is public 3. less trading There's nothing preventing an "active" manager from behaving in the same/similar manner.

ethbro 8y ago
The distinction, as I understand it, are that active funds are legally free to invest in more abstract concepts. E.g. that oil will rally under these sets of economic conditions, and oil companies with these fundamentals are preferable. Whereas passive index funds' concepts are much simpler. E.g. all companies that are this large. This gets summed up as "less trading", but is really just trading on simpler criteria. I'd be really curious to hear from someone in the area about the opposite -- what keeps passive funds (in the "no human" sense) from behaving more like active funds, with targeted, complex investment concepts? If I wanted to start an algorithmically traded fund, cut my expense ratio by not having to pay humans, are there legal barriers currently standing in the way?