Is it true that pre-fees/turnover expenses, active strategies have historically given around the same return as passive strategies, and then when you factor in fees/turnover, active returns are historically worse? I think I remember reading that in Schweser but can’t find it now–if you can direct me I would appreciate it. Thanks.
You may find your answer page 130-131 in book3, LOS 32.c
You can read Carhart’s paper: http://stuwww.uvt.nl/fat/files/library/Carhart,%20Mark%20M.%20-%20On%20Persistence%20in%20Mutual%20Fund%20Performance%20(1997).pdf
thanks bern for finding this. so if this is indeed true (that active returns essentially are the same as passive returns before fees), then how is information ratio for semiactive and active return higher? Page 129 states “Historically, the information ratio has been highest for semiactive management and lowest for passive management with active management falling in the middle.” Wouldn’t you expect that if active and passive returns have been the same, then the active return is negated by the active risk making the information ratios also the same?
The above is fact, while the following is just opinion. 1, The historical data used for comparison are most likely non-compliant with GIPS. 2, Even if it all depends on GIPS compliant data, it’s still exposed to survivorship bias.