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Sanford C. Bernstein Compared Passive to Marxism, Now Has 2 ETFs

Sanford C. Bernstein Compared Passive to Marxism, Now Has 2 ETFs

(Bloomberg) -- Sanford C. Bernstein & Co. once declared that the rise of passive asset management would be worse for society than Marxism. Now it appears to have experienced a change of heart.

The New York-based research and brokerage firm is launching a pair of exchange-traded funds a little more than year after it published a widely read note titled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism.”

Called the Bernstein U.S. Research Fund, ticker BERN, and Bernstein Global Research Fund, symbol BRGL, the hybrid ETFs aim to track the firm’s U.S. and global research indexes. In addition, the funds will own stocks that are rated “outperform” by Bernstein analysts and also rank in the top 60 percent of the firm’s own quantitative alpha model, according to Robert Van Brugge, the firm’s chairman and chief executive officer.

“If you look at this product, the real innovative feature is that you can basically use the passive process and the passive infrastructure out there to run a fund that uses very active ingredients,” he said . “Those active ingredients being the very detailed bottom-up research that our fundamental analysts do.”

Van Brugge also argued that the authors of “The Silent Road To Serfdom” didn’t mean to say that there wasn’t a place for passive investing strategies, even though they stated that a capitalist economy “where the only investment is passive is worse than either a centrally planned economy or an economy with active market-led capital management.”

“We’re not against passive investing,” Van Brugge said. “There is clearly a role, particularly when you can buy the passive products very cheaply.”

Still, the tongue-in-cheek title is really all people remember.

“What we wanted to do is change the debate -- there’s not an ETF versus active management debate, there’s a debate on what is the role of passive and what is the role of active,” he said. “We obviously feel very strongly there is a role of active next to the passive offerings, and you can do both of them in ETF format.”

--With assistance from Rachel Evans

To contact the reporter on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Eric J. Weiner, Andrew Dunn