Passive Index Funds vs. Active Management – Which is the best strategy in a bear market?

Passive indexing not a good strategy in a declining market

No place to hide in index funds

Active management sharply outperforms an index fund in a bear market due to the following:

Have more cash and invest in more defensive industries like Reits, Utilities and Telcos.

Individual stock selection weeds out poor performers and over leveraged ones

 

Algorithm based program selling triggers liquidation of both strong and weak sectors equally. However when markets rebound once again, defensive sectors and stocks tend to come back first.

Conclusion

Avoid passive index funds in a bear market

Active asset mix, stock and equity sector selection is the preferred strategy especially in a falling equity market

 

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