Envestnet Whitepapers

5 Active vs. Passive Asset Management: An Update Recall we stated earlier that the cut-offs that we use for assigning the "active," "passive," or "neutral" moniker to categories are somewhat arbitrary, and we advise investors and advisors to consider their approach to investment analysis, combined with the underlying percentile of positive alpha active managers that we have provided, to decide whether to implement a category with active or passive products. Table 2 Categorization of asset classes into "Active" (A), "Passive" (P), and "Neutral" (N), using the entire available history of manager returns. Active: Manager Success Rate ≥ 33 Neutral: Manager Success Rate < 33 & Manager Failure Rate < 67 Passive: Manager Failure Rate ≥ 67 Apr-2018 Mar-2022 MORNINGSTAR CATEGORY Mgr. failure rate (avg.) Mgr. success rate (avg.) Type (avg.) Mgr. failure rate (avg.) Mgr. success rate (avg.) Type (avg.) Category switch Emerging Markets 51 44 A 51 39 A N Foreign LCG 46 44 A 42 47 A N Foreign LCV 44 39 A 42 44 A N Foreign S/M C 11 74 A 41 34 A N Foreign S/M G 15 75 A 6 87 A N Foreign S/M V 19 57 A 37 36 A N Large Cap Growth 53 39 A 59 34 A N Mid Cap Growth 56 36 A 56 33 A N Small Cap Core 35 52 A 38 54 A N Small Cap Growth 28 64 A 26 66 A N Small Cap Value 39 45 A 39 44 A N Real Estate 39 43 A 39 40 A N Commodities 77 11 P 32 38 A Y Large Cap Value 69 26 P 64 28 N Y Foreign LCC 56 32 N 59 32 N N High Yield 61 31 N 63 27 N N Emerging Markets Bond 62 28 N 67 18 P Y Bank Loan 68 16 P 78 9 P N TIPS 74 17 P 69 16 P N IT Bond (Intermediate Core Bond) 63 29 N 72 18 P Y Muni Nat'l Int. 88 9 P 82 9 P N Muni Nat'l L 84 7 P 86 8 P N Muni Nat'l S 84 9 P 80 14 P N Large Cap Core 72 20 P 74 21 P N Mid Cap Value 67 24 P 67 21 P N Mid Cap Core 65 25 N 68 21 P Y

• Cover