When California Public Employees’ Retirement System, or CalPERS, moved to so-called passive management of the portfolio of its pension plan in the second half of 2013, the news caused a stir among investment managers. You should take note, too.
CalPERS is a heavyweight among pension plans, with $260 billion in assets. The move means that Cal-PERS believes that it’s in the best financial interest of those who are invested in the pension plan that investments in the stock market be made via a mutual fund that aims to replicate the movement of a specific index, or index fund, not a general mutual fund or individual stocks.
Should you consider the CalPERS move for your own investments? Paul Jacobs, who is the chief investment officer of Palisades Hudson Financial Group, believes that a passive approach is suited particularly for individuals who want to own shares in large companies.
Jacobs prefers so-called active management for small-company stocks, emerging markets and real-estate investment trusts. These demand more attention, because they can be affected by events more easily than can large-company stocks.