Portfolio Construction

Active and Passive Investing — The Long-Run Evidence

2Q 2018

Topics - Portfolio Construction Factor/Style Investing

Read Time - 25 min

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Active and Passive Investing — The Long-Run Evidence

How have active managers performed over the past 20 years?

Active managers have faced challenging years of late. However, our studies show that the long-run evidence on collective active manager performance from several databases appears surprisingly good. Positive average alphas for delegated active managers may reflect true outperformance over 20 years (earned from other active investors), or reporting biases that overstate performance, or some mixture of both.

Are certain investor types, market contexts, or time periods more conducive to good active manager performance?

Further analysis reveals that active management has paid off especially well for large institutional investors; outside the U.S. and more generally in “dusty corners” of financial markets; and at times when common out-of-benchmark tilts fared well. The last point may explain why U.S. equity managers have lagged their benchmarks in the past decade, while many active fixed income managers have outperformed.  

Other questions

We also briefly discuss some market implications of the growing shift toward passive. To date, we find only limited measurable impact on market behavior. A companion paper turns to other questions on active versus passive investing, such as the market share between active and passive and the fuzzy boundary between them, as well as implications of the arithmetic of active management.

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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.


Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. The hypothetical performance shown was derived from the retroactive application of a model developed with the benefit of hindsight.  Hypothetical performance results are presented for illustrative purposes only.


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AQR Capital Management is a global investment management firm, which may or may not apply similar investment techniques or methods of analysis as described herein. The views expressed here are those of the authors and not necessarily those of AQR.