Markets had been living through an era of slow burn, low interest rate-boosted index funds for years until rapid rate hikes in 2022 and 2023. That era of passive ETF ascendancy led some to look past the benefits active investing can provide. Not only do active investing products like active ETFs provide direct benefits to their investors, but also it boosts the overall economy, as well. As such, investors may want to consider the dual short and long term benefits of active investing.
The notion that active investing boosts the overall economy received new scrutiny in a recent working paper out of Duke University. Analysis by Professor Simon Gervais at Duke’s Fuqua School of Business suggests that active management provides a big boost to the economy.
By identifying the most productive industries and signaling to others how firms should be priced via their stocks, active investors boost market efficiency. Per the Professor’s research, the presence of active managers alone may boost the overall economy thanks to the information they gather. As an example, the Professor suggested that while markets may read a merger as one level of information, active managers may add levels of analysis by considering the merger’s impact on the broader market.