Back on Aug. 23, AllianceBernstein published a paper titled “The Silent Road to Serfdom: Why Passive Investing Is Worse Than Marxism.” The paper calls on policymakers to understand the role of active management in the allocation of capital, and argues there would be “costs to the system overall if active management suffers a catastrophic demise.”
Though I find the argument to be preposterous, only recently did it occur to me that it was actually Bernstein’s position that was worse than Marxism.
Rather than assume this was sour grapes from subpar performance, I dug into the AllianceBernstein 2015 10-K Annual Report. Deep in the schedules were flows of funds by asset type. Three things popped out in looking at the two-year numbers ending Dec. 31, 2015.
- It listed a substantial amount of its equities as “passively managed,” as well as some of its fixed income. Has it embraced passive investing?
- Its “equity actively managed” accounts showed “net long-term outflows” both years. Total actively managed assets increased slightly due to acquisitions and appreciation.
- Active equity and taxable fixed income seems to have underperformed the broad index funds.
In the chart below, I compare the market appreciation of AllianceBernstein’s active equity and taxable fixed income to the two largest index funds—the Vanguard Total Stock Index Fund (VTI) and the Vanguard Total Bond index Fund (BND).
In this admittedly imperfect comparison, AllianceBernstein comes out significantly short. Of course, I don’t know how much of the equity was invested in international or how much risk AllianceBernstein took with fixed income.