So, while passive versus active investing is often presented as a simple either/or, there should never be a binary choice between active or passive investment vehicles as the sole solution to your investment needs. This said, it's important to understand the arguments surrounding passive versus active investing and why, despite the growing popularity of passive products, there should be room for active investments in your portfolio:
Performance. Passive providers often bandy around the statistic of how more than 50 percent of active managers underperform the benchmark. However, they never quote their own result against the same measure, because 100 percent of passive products underperform the same benchmark by at least their cost. So some active managers underperform, but all passive managers do.
The counter-argument is that at least the size of passive managers’ underperformance is known upfront, whereas the variability of the active managers’ performance is not known. At the same time, it’s important to remember that active managers outperform as well.
Furthermore, these statistics demonstrate survivorship bias in that while poor managers usually end up closing shop, their poor numbers usually remain in studies - even though they are no longer available as investments.