Investment Research: Do Actively Managed Funds Outperform In Down Markets?

Journal of Financial Planning: July 2001

Whenever proponents of active management are asked about indexing, there’s a good chance that one of the arguments trotted out will be that, relative to indexers, active managers shine in down markets. They shine, or so their story goes, because active managers can do any of the following:

1. Raise cash levels
2. Move into defensive sectors
3. Avoid the so-called mega-cap names that can sometimes drive the performance of market-cap weighted indexes
4. Hedge (such as short futures)

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