Beyond Diversification: What Every Investor Needs to Know About Asset Allocation

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Active Versus Passive and Something About the “Pharma Bro”

We can’t measure directly if the market is efficient from a capital allocation perspective. But indirectly, we can study whether abnormal profits are possible.

—JPP

NOW THAT WE HAVE DISCUSSED RISK FACTORS AND THE role of alternative assets, we must discuss one more important question on portfolio construction: Should we allocate to active or passive building blocks?

In recent years, index strategies have gained market share over active managers. The common narrative is that on average, active managers don’t outperform index-tracking strategies. In my view, this narrative is flawed. Not every active manager is “average.” Skilled active managers—with a repeatable and disciplined process, ...