Yesterday, we mentioned an unreleased academic study that measured the aggregate “cost of active management” in US equity markets.  We concluded with remarks from one particularly staunch proponent of efficient markets.  But even he left the door open for active management (presumably where markets were less efficient).

Assembling such an active/passive portfolio lies at the heart of alpha/beta separation.  But since the term “alpha beta separation” conjures up memories of high school math club, marketers of asset management services have coined the term “core/satellite” investing (where “core”=passive and “satellite”=active).  What’s striking is that, rather than being ridiculed by traditional passive managers, core satellite is being embraced by them.

For example, this brochure from Barclays (iShares) is subtitled “creating harmony between index and active strategies”.  It says:

More…