Active fund managers have struggled for decades to beat the index. Even Warren Buffett is on a four-year losing streak and has instructed his wife to invest the majority of her trust in an S&P 500 index fund.
Maybe active managers have been going about it all wrong in the search for alpha — or, in other words, performance that beats the benchmark.
An increasing number of financial advisors and high-net-worth investors are paying up for downside protection rather than eye-popping performance. That's notable amid current market volatility. These investors aren't using hedge funds to limit risk, either. As counterintuitive as it may seem, passively managed ETFs—packaged as a tactical fund of funds—are the latest trend in active investing.
"You could probably do 85 percent to 90 percent of what a sophisticated stock and bond hedge fund was doing just with indexes," said John Forlines III, founder and chief investment officer of JAForlines, an ETF strategist.