Issue link: https://resources.envestnet.com/i/1528379
10 5 | SUMMARY This version of the Active vs. Passive whitepaper, updating the previous results in two takeaways. • First, when we examined the entire data history, we found that the "active," "passive," and "neutral" asset class categorizations changed little from previous versions of the whitepaper. • Second, we introduced time-trend, rolling-three-years analysis to measure the positive and negative alpha manager proportions in a peer group, concluding that these proportions can change meaningfully over time. Investors and advisors contemplating using active or passive implementation vehicles can use this analysis for a current perspective on the proportion of positive and negative alpha managers in a category, combined with other data points, to make a more informed investment decision. 5.1 | ACTIVE-PASSIVE 2.0 As part of a due diligence mosaic, traditional active strategies and systematic factor-based strategies can be evaluated using an approach like the one presented in section 4.2. In aggregate, this type of factor- adjusted analysis could also improve our understanding of which asset classes have a higher proportion of truly skilled managers. Future versions of this study will attempt to build upon our existing research by evaluating two central questions. First, how do we assess the success of systematic factor-based strategies that attempt to capture factors that academic research has shown have the ability to outperform over time across asset classes? The ActivePassive study, while good at identifying success from idiosyncratic strategies, does not attempt to make a judgement about systematic strategies that seek to quantitatively capture rewarded risk factors. These strategies may show up as successful or unsuccessful in any given iteration of our study based on the performance of the style factors they seek to capture during that period. The second question that arises from a consideration of factor-based research is in which asset classes are investors most likely to find actively managed strategies with broad factor-adjusted alpha, not just beta- adjusted alpha? No one wants to overpay for risk premia. We will build upon the framework presented here in an effort to answer these questions. While no simple exercise, we expect the outcome of this future research to provide significant new insights into both alpha- seeking and factor-based investment products. FOR ONE-ON-ONE-USE WITH A CLIENT'S FINANCIAL ADVISOR ONLY © 2022 Envestnet. All rights reserved.