Market Overview

New Take on Old Debate – Active v. Passive: Breakthrough White Paper Details Outperformance of Disruptive AI-Based Investment Approach


A newly available White Paper published by the EAM Research Consortium, "Ensemble
Active Management – The Next Evolution in Investment Management
tests the viability of a new approach to active management, Ensemble
Active Management
, versus traditional Active and Passive Management.
Ensemble Active Management ("EAM") is the result of investment
management being ‘re-imagined' through the insights of technologists,
and the proven power of Artificial Intelligence.

"EAM Portfolios" are built by applying time-tested "Ensemble
Methods," a core component of Artificial Intelligence and Machine
Learning for decades, to the high conviction stock selections of
traditional actively managed mutual funds. The result is a
‘multi-expert' solution, vs the ‘single-expert' paradigm of traditional
Active Management. To test the concept, a massive database was built
consisting of 30,000 EAM Portfolios, evaluated over more than ten years,
and featuring more than 165 million data points.

The clear, statistically significant conclusion was that EAM-based
portfolios have a higher probability of outperforming both traditional
actively managed mutual funds and the S&P 500 Index over time.

"In the early 1990's, I was a core member of the team that launched ETFs
and permanently changed the course of investment solutions," said Robert
Tull, a White Paper Contributing Editor and an ETF industry icon since
the industry's founding in 1993 (as demonstrated by being recently
awarded the ETF 2018 Nate Most Lifetime Achievement Award). "Now, 25
years later, I am excited to be part of the team introducing a
breakthrough approach to investing that should change the face of
investing once again – Ensemble Active Management. Technology enables
innovation, and in this case, investors win."

Key findings from the White Paper include:

  • EAM Portfolios outperformed the S&P 500 Index 72% of the rolling
    1-year periods
    from July 2007 through December 2017. The average
    annual excess return was 340 bps (3.4%).
  • Demonstrating the power of compounding, EAM Portfolios outperformed
    the S&P 500 Index 94% of the rolling 3-year
    . The average annual excess return was 380 bps
  • EAM Portfolios outperformed actively managed mutual funds 82% of
    the rolling 1-year periods, and 95% of the rolling 3-year periods
  • EAM Portfolios delivered a risk-adjusted-return (as measured by
    Sharpe Ratios) that was 17% greater than the S&P 500 for rolling
    1-year periods, and 22% greater for rolling 3-year periods

The above data would compare to the ACTUAL results for actively managed
large cap US equity funds versus their corresponding index funds, where
active funds outperformed only 16% of the rolling 1-year
periods and 0.4% of the rolling 3-year periods
(January 2008 to
December 2017)1.

In addition to a thorough presentation of the data and its analysis, key
sections of the White Paper include:

  • "Ensemble Methods – Breaking Through the Glass Ceiling": How
    and why Ensemble Methods work.
  • "Ensemble Active Management": Why traditional mutual funds are
    a near-ideal foundation for applying Ensemble Methods.
  • "Mechanisms to Deliver EAM Portfolios": Details of three viable
    approaches that investment firms, technology firms, and institutional
    investors could use today to create and
    deliver EAM Portfolios.
  • "Conclusion – Throwing Down the Gauntlet": Potential benefits
    that Ensemble Active Management would deliver for Retail Investors,
    Institutional Investors, and a wide-range of Advice Providers, if real
    market results of EAM Portfolios can even approximate the White Paper

The White Paper is currently available for immediate download at

About EAM Research Consortium:

EAM Research Consortium is a group of technology professionals, data
scientists, investment professionals, and academics who believe that
Ensemble Active Management is a real and viable concept, and who have
come together to advocate for its broader acceptance and use.

the EAM Research Consortium Group on LinkedIn
. In an
effort to encourage engagement, and to foster transparency, all EAM
Research Consortium Group members will have access to the summary data
generated as part of this White Paper.

1 Source: Morningstar Direct.

View Comments and Join the Discussion!