Jeff Ptak – The Prospects for Active Management

**Patrick O'Shaughnessy** (0:00)
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Hello and welcome, everyone. I'm Patrick O'Shaughnessy, and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (0:59)
Patrick O'Shaughnessy is a principal and portfolio manager at O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:21)
My guest today is Jeff Ptak. Jeff is the head of Global Manager Research at Morningstar. This puts him in a unique position to discuss the state of active management because he gets to see mutual funds from both the bottom up through deep diligence on investment strategies in firms and top down using Morningstar's data to assess industry wide trends.
Jeff is one of my favorite myth busters, so be sure to check out a few of the articles he's written linked in the show notes, which can be found at investorfieldguide.com forward slash Ptak, which is P-T-A-K. While we spend most of our time discussing different variables for assessing active managers and mutual funds, we also cover his favorite punk rock bands. Please enjoy our conversation.
Okay, Jeff, thank you very, very much for doing this with me today. I've always been envious of people in seats like yours where you have sort of this interesting top down and bottom up view of the asset management business, mutual funds, ETFs. And so maybe where we could start that would be interesting would be to hear what trends in kind of broadly speaking in the mutual fund and ETF space have your attention and interest today.

**Jeff Ptak** (2:29)
Yeah, so first off, thanks Patrick for having me.
It's a great pleasure to be able to join you and share our perspective. And so I would say that that's certainly the most prevalent trend that we're seeing right now. And this will be familiar, I think, to a number of your listeners is the shift towards lower cost mediums for investment, most notably passive and specifically ETFs. And so it seems the tide is going out on active and the money is moving into passive, low cost investments.
And so we've seen a pretty significant shift in market share, you know, just focusing on the US from active, I should say, into passive, that is from higher cost investments into lower cost investments. And so certainly that's something, you know, that we're focusing on. And, you know, but in a sense that that's a bit of a result of other forces that have swept the industry, you know, the opening up of platforms, the unbundling delivery of advice and investment solutions. You know, I think that that's probably spurred the focus on cost among other things. And that's one of the reasons why investors and those that are representing them have moved towards passive investment. So if there's one thing, that's probably the biggest one that's got our attention.

**Patrick O'Shaughnessy** (3:47)
Can we parse that a little bit more? Because everyone obviously is living and feeling the move that I would categorize above all else as high cost to low cost. Obviously that plays itself out a lot and flows into passive.
But I'm curious if there are specific pockets, you know, thinking in the Morningstar style box or different asset classes, where you've seen the most flight out of, let's say, active and or high cost and into passive. And if there are areas where you see less of it, where people seem to continue to believe in active management, at least more than other parts of the market.

**Jeff Ptak** (4:24)
Yeah, that's an excellent question. So I would say that by far the biggest victim, if you want to call it that, or casualty has been large cap and large cap growth specifically.