Where Passive Falls Short:
Presenting a True Tax-Managed Indexing Approach for Australian Investors (Revised1)
The decision to invest either passively or actively into equities reflects a fundamental investment philosophy question for superannuation funds. With the more recent arrival of ‘smart beta’ and ‘systematic alpha’ approaches, increasingly, a fund’s investment choices sit along a continuum, rather than being merely a binary active versus passive decision.1This research updates our prior paper from April 2015 in response to industry requests for further detail. We update the relatively straightforward screened portfolio construction method we presented (for simplicity) in our earlier paper to reflect the more sophisticated optimised construction method we use in practice. The paper also includes more detail about the lost, or rather ignored, opportunity set for typical passive strategies in relation to the management of capital losses.