@article {Berger18, author = {Adam L. Berger}, title = {{\textquotedblleft}An Index Isn{\textquoteright}t a Fiduciary{\textquotedblright} and What That Means for Active Management}, volume = {11-12}, number = {4-1}, pages = {18--23}, year = {2021}, doi = {10.3905/jii.2021.1.102}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Before the arrival of passive investment vehicles, the role of an active manager was to provide an investor with access to a particular market and, critically, to do so in a way that was aligned with the investor{\textquoteright}s objectives. With the rise of passive management, the role of active management was narrowed to {\textquotedblleft}beating a cap-weighted benchmark,{\textquotedblright} but this shift often took the investor{\textquoteright}s goals out of the equation. I believe investors deciding between active and passive implementation should first consider whether a market-cap-weighted index is sufficiently aligned with their objectives or whether a manager, serving as a fiduciary, can construct a portfolio that{\textemdash}after costs{\textemdash}will be better aligned. I also challenge the zero-sum argument that trying to beat a cap-weighted benchmark after fees is futile. My view{\textemdash}that this argument wrongly assumes that all investors have similar preferences{\textemdash}is borne out by deviations between the asset allocations held by institutional investors and the global market-cap-weighted portfolio.TOPICS: Passive strategies, portfolio construction, global, performance measurementKey Findings▪ In distinguishing between active and passive implementation, investors should first acknowledge that any approach that is not market-cap-weighted and intended to capture the breadth of a given market is inherently active, even if offered in an index form.▪ Market-cap-weighted indexes offer investors several important advantages, but there are many instances in which they may not be structured to achieve the objectives investors seek to achieve.▪ There is some logic to the notion that for every investor who outperforms a cap-weighted benchmark, another investor must underperform it. Even those who acknowledge this zero-sum argument, however, can still reasonably choose to deviate from these benchmarks to create a portfolio that is better aligned with their objectives.}, issn = {2154-7238}, URL = {https://jii.pm-research.com/content/11-12/4-1/18}, eprint = {https://jii.pm-research.com/content/11-12/4-1/18.full.pdf}, journal = {The Journal of Beta Investment Strategies} }