Why Blending Passive and Active Strategies Works in Today’s Markets

A well-diversified portfolio that combines passive and active strategies while staying aligned with long-term client objectives is one of the most effective ways to handle market uncertainty and support sustainable wealth, says Chris Koltek, institutional client portfolio strategist at Portfolio Solutions Group.

“For years, the debate was framed as ‘Are you active or are you passive?’ But what we’re seeing now is passive being treated as a tool,” he explained. “Instead of choosing one side, investors are integrating both approaches.”

Speaking on the Soundbites podcast, Koltek emphasized that passive investing should not be viewed as a rigid philosophy.

“It’s not about being passive in how you think,” he said. “Thoughtful use of passive strategies still requires active decisions about when, where, and how to implement them.”

According to Koltek, the real strength of passive models comes from combining them with active choices.

“There’s no universal formula or perfect split between active and passive,” he said. “It’s not about percentages—it’s about aligning with the client’s purpose and investment objectives.”

Passive investing, typically characterized by low-cost, index-tracking ETFs, provides three main advantages: affordability, broad diversification, and transparency. It can serve as the foundation of a portfolio, be used to make tactical shifts, or form part of a core-satellite structure that blends active and passive strategies.

“All of these approaches help with cost control, liquidity, transparency, and precision in allocation,” he noted, adding that the current economic landscape creates opportunities for both passive and active management.

“Passive funds can serve as a fast and efficient way to reposition during volatile markets,” Koltek said. “But they do come with trade-offs and risks.”

One such risk is concentration, where a few large companies dominate the index.

“When that happens, a passive portfolio can be more fragile than it appears,” he said. “During market stress, those large-cap names can fall together, dragging the index down and limiting diversification benefits.”

He also pointed out that passive funds don’t differentiate between undervalued and overvalued stocks. By following the index, they often overweight overpriced companies while underweighting undervalued ones.

“A skilled advisor can help clients define their objectives, understand risks and constraints, and build an approach tailored to their needs,” Koltek said.

“Clients and advisors need to identify where active managers can deliver value, which markets are efficient, and when it’s worth paying for performance or risk oversight. When each fund—whether active or passive—has a clear role and justifies its place, that’s when you achieve the right mix for the client.”