Is The S&P 500 Actively Managed?

In Mebane Faber’s new book, “Global Value,” he states: “It is ironic that the largest and most famous index, the S&P 500, is really an active fund in drag. It has momentum rules (market cap weighting), fundamental rules (four quarters of earnings, liquidity requirements) and a subjective overlay (committee input). Does that sound passive to you?”

While we could debate extensively whether or not the S&P 500 Index is actively managed, I agree that it is. For me to consider the S&P 500 passive, it would have to comprise the top 500 stocks by market capitalization or, failing that, use rules-based screens with no reliance on the subjective judgments of committee members.

With that said, the real question is, Why does it matter if the S&P 500 is actively or passively managed? One reason the distinction might be important is because of an argument often raised by supporters of active management. They contend that the S&P 500 is not a fair benchmark because it’s really an actively managed index. Let’s examine if that claim has any validity.

Read the rest of the article on ETF.com.