Why Core Passive and Satellite Active Investing Makes Sense


Individuals and institutions can benefit from using the core passive & satellite active investment approach. Since the U.S. equity market is a very efficient market and most actively managed funds underperform the index, one should purchase an index fund such as VOO from Vanguard. On the other hand, global bonds is a less efficient market, which leads to more opportunities for actively managed strategies to outperform.

Core passive and satellite active investing means using low cost passive strategies to gain exposure to efficient asset classes and active investment strategies to gain exposure. You want to be active where it counts.

  1. Dollars spent on loosing active U.S Equity Funds: Over $20 billion / year in fees spent on loosing U.S. Equity Funds
  2. According to Morningstar: Over 83% of active U.S. Equity Funds underperformed the index over the last 10 years (this even excludes a survivorship bias)
  3. Owning more than one Active U.S. Equity Fund reduces your chance of outperforming.

Most mutual fund companies or investment advisors use either active management or passive management (passive management is buying the index). We believe in accessing the best of both worlds using the core passive and satellite active investment approach.


Those that currently only have actively managed funds should consider using passive funds in the more efficient asset classes such as U.S. equities. If you are only using passive funds, then there are opportunities in areas such as global bonds that you might do better with an active fund. When using a passive fund make sure it is the lowest fee fund available, normally these are offered by Vanguard. When deciding on an active fund it is best to talk to an advisor or consultant.


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