Investors in retirement and mutual funds should absolutely keep the majority of their funds indexed, said CalSTRS chief investment officer Chris Ailman on Tuesday.
The U.S. market is way too efficient, so it is better to invest in funds that track major indexes than put them in the hands of an active manager, Ailman told CNBC's "Power Lunch" on Tuesday.
"Two-thirds of the active managers usually don't beat the market, especially after fees, so whether it's a Vanguard or a Fidelity, any kind of an index product in their 401k makes the most sense," he said.
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About 80 percent of CalSTRS's U.S. investments are passive. But outside the country, where Ailman said markets are less efficient, about 50 percent of its investments are actively managed in order to balance country and regional risk. In emerging markets, CalSTRS is 100-percent active.
Japan in particular is an interesting investment opportunity, said Ailman, noting that the country's decision to delay a planned tax hike shows the country has work ahead in its bid to restart its economy.
"I would absolutely hedge the yen back to dollars, but we think that the Japanese market has some upside potential," Ailman said.
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At home, Ailman sees tailwinds slowing following the end of the Federal Reserve's stimulus program, but no real headwinds on the horizon.
"We think investors should stay invested in this market and not get worried about the length of the bull market."