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Morningstar introduces active/passive barometer


Morningstar has introduced an Active/Passive Barometer to help investors measure the relative performance of active US fund managers against passive US funds within their respective Morningstar categories. 

Morningstar's manager research analysts presented the new report at the 27th annual Morningstar Investment Conference for financial advisors in Chicago. The report measures active fund managers' success using investable passive alternatives as the benchmark.

"The active versus passive debate is a familiar one in the industry. Our new barometer provides investors with an ongoing, practical test of how active managers have fared against passive alternatives," says Ben Johnson, Morningstar's director of ETF research. "Our approach is squarely focused on the performance of actual investable options, instead of an index. We're also replicating the investor experience by studying funds based on their category classification at the beginning of the time period, controlling for survivorship, and taking into account the importance of fees."

To measure performance, Morningstar calculates success rates, which indicate the percentage of actively managed funds that survived and generated returns in excess of those produced by the average passive fund in the same time period in a particular category. The average passive fund return reflects the actual, net-of-fee performance of passive funds in each category. Morningstar also calculates the success rates for each fee quartile in every category.

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