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The Case for Combining Passive and Active Investing

The Case for Combining Passive and Active Investing

(Bloomberg Opinion) -- Don’t let the rise of passive investing obscure the fundamental advantages of diversification. In our Masters in Business interview, Sharon French explains why active and passive approaches can complement each other in a portfolio.

French will soon take the reins at American International Group Inc.’s life and retirement funds business, which manages more than $85 billion in assets. In her last job, she was director of beta solutions at Invesco Advisers Inc.'s Oppenheimer Funds, and ran the environmental, social and government effort there as well.

Her approach is to use exchange-traded funds to create a portfolio that is anchored in low-cost, passive indexes. But at the same time, it employs other approaches ranging from fundamental weighted to quantitative analytics. This style diversification should lead to more balanced volatility and better risk-adjusted returns.

French has spent the better part of her career on the ETF side, focusing primarily on enhanced indexes, which cover a full spectrum of noncapitalization-weighted indexes. She also worked at BlackRock Inc. as the head of private client and institutional sales.

She is president of the Global Governance Committee for Women in ETFs and a member of the Investment Company Institute’s ETF governance committee.

Her favorite books are here; a transcript of our conversation is here.

You can stream/download the full conversation, including the podcast extras on Apple iTunesBloombergOvercast and Stitcher. All of our earlier podcasts on your favorite host sites can be found here.

Next week we speak with Jonathan Stein, co-founder and chief executive officer of robo-adviser Betterment LLC,

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Barry Ritholtz is a Bloomberg Opinion columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He is the author of “Bailout Nation.”

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