The Rational Reminder Podcast

Episode 364 – Martijn Cremers: Is the Conventional Wisdom on Active Management Wrong?

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Jul 3, 2025
Guest
Martijn Cremers
Martijn Cremers, Dean at Notre Dame's Mendoza College of Business and co-author of Active Share, dives into the debate around active versus passive investment management. He challenges traditional views, suggesting that recent research casts doubts on the superiority of passive strategies. Martijn highlights the importance of high active share in less efficient markets, emphasizes the role of patience in investment strategies, and critiques closet indexing. His insights push listeners to rethink active management's potential and its true performance metrics.
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INSIGHT

Conventional Wisdom on Active Management

  • The conventional wisdom that average active funds underperform after fees is weaker when comparing actual returns to real passive funds instead of theoretical benchmarks.
  • Many benchmarks like Fama-French factors overweight small caps, creating unrealistic performance hurdles for active managers.
INSIGHT

Sharpe's Active Management Assumptions

  • Sharpe's zero-sum game assumption for active management assumes a fixed, known market portfolio which is unrealistic.
  • Market portfolios constantly change, making active management dynamics more complex than initially thought.
INSIGHT

Challenges for Active Managers in US Equity

  • Massive outflows and highly concentrated large-cap indexes challenge active managers in US equities.
  • Remaining active management opportunities are stronger in small-cap, emerging markets, and bonds due to inefficiencies.
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