Active-Passive Debate Lights Up Twitter
May 10, 2022
Twitter is abuzz with comments about active and passive management with some very high-profile names engaging. Venture capitalist Marc Andreessen (@pmarca), Tesla & SpaceX CEO Elon Musk (@elonmusk), and Ark Invest CEO Cathie Wood (@CathieDWood), all vouched for the benefits of active management.
The debate highlights the latest example of the media and high-profile voices amplifying the false dichotomy that exists between active and passive. In fact, research has shown that the best portfolios combine both active and passive and that it’s not a horse race or an either/or proposition.
After a series of tweets from Andreessen and Musk, Wood — a prominent active manager herself — got into the action, tweeting that passive investing caused investors to miss out on a 400-fold gain in Tesla stock due to Tesla’s late entry into the S&P 500. She writes that according to Ark Invest research, passive investing is “short” innovation and will result in missed opportunities.
The tweet prompted a reply from Musk about another key benefit of active management — its importance in improving market efficiency.
Bloomberg highlighted one of the Council’s key points — writing that there is an active element to nearly all passive strategies — “from writing the rules of every index to deciding how each fund will run.”