Barry Ritholtz, Columnist

Shift From Active to Passive Investing Isn’t What It Seems

Many active money managers all buy the same stocks, just like index funds. But they charge much higher fees.

October 28, 2016 at 3:27 PM UTC

Barry Ritholtz is a former Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”

He knows how to pick ’em.
Photographer: Tim Boyle/Bloomberg

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The move from active investing to passive has been a hot topic lately. Fund flows show that investors are voting with their feet. The news media has been all over the story. The Wall Street Journal has done a big spread on it; Bloomberg has covered it extensively as well.

Bill Miller, the legendary stock picker at Legg Mason Capital Management who beat the Standard & Poor’s 500 Index for 15 consecutive years, has an intriguing theory about why investors have been abandoning active investments. Although some people see passive investing as a form of active investing, he sees the precise opposite phenomenon: Active fund managers are often nothing more than high-priced closet indexers.

I recently spoke with Miller for a new episode of Masters in Business (it will broadcast Nov. 5) and we exchanged e-mails during the past few days about the subject. Here’s a summary of his thoughts and insights: