Index vs Active debate using one chart

Hi all,

I'm preparing a presentation on financial planning and part of the presentation discusses the concept of passive/index managed funds vs active managed funds.

Time is of the essence so we only have one slide to dedicate to this topic.

We have a number of graphics which we could use for however I wanted to see if anyone in these forums had a graph, chart, article, piece of research which they thought explained the concept clearly and simply that the lay man could comprehend.

I have attached three resources that we may rely upon, but really only have one. If you don't have any resources, but recognise what any of the following charts are illustrating then I'd be interested in your vote as to which one you would use!

I hope the attachments have worked!

 

I love the pdf with the normal distribution. It really shows that although some managers outperform the index their success was just as likely to happen by chance. Statistically speaking it appears there is only a few percent of managers who have outperformed the index using more than just good luck. It also shows it is more likely for a manager to under perform the index than outperform.
To me it really makes the case for using passive funds.

 

Hi MJRoss,

I'd use the last one, it's pretty easy to understand.

Before using it I would go back to DFA and ask them for a newer copy as that one is from March 1997, also the other graphs were a bit old so a 2006 or 2007 version would be a bit more up to date (I imagine the actual data wouldn't change that much). It'll show a bit more credibility as your not "fishing" for the data to suit your story, your showing up to date actual data without any bias.

Cheers,

Dan

 

I agree with the previous comments about the last one (the pdf). Explains the concept that Fund Managers are generally a bunch of gits really well (but then so do the other two, but the last is prettier).

BR

 

Hi MJRoss

Depends on your audience, if they are truly a lay man or novice audience, I don't think they will understand terms such as t(alpha), multifactor, fat-tailed, repeat, statistical significance. Which may mean on a ppoint slide you spend more time explaining details rather than the overall concept/context of your message.

Can you describe what this slide is representing in a single paragraph. I can deduce the context from the title, but not the picture. I can't see what the picture is trying to show me. Why are some in blue?

Just my quick thoughts?

 

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