chapter introduced the idea of an active risk budget, and showed how investors could develop such a risk budget at the asset class level. That chapter also briefly discussed how risk budgeting could be applied to develop a roster of specific investment managers. At some point in the implementation process, most investors must eventually face the following issue: What is the best blend of active and passive managers in their equity portfolios? Some investors implement fully passive portfolios. Others use the passive alternative to dilute the risk in their active program by "barbelling"-that is, hiring a roster of traditional active managers at one end of the risk spectrum, and mixing in index funds at the other, to hit an active risk target that lies somewhere in the middle. We believe that investors who follow a barbell strategy are missing a valuable opportunity to put their passive exposure to work. This lost opportunity is analogous to the opportunity that investors miss when they include cash in their strategic asset allocations. In our view, investors can improve the expected risk-adjusted performance of their active portfolios by substituting structured equity managers for their passive positions. It is now commonplace to categorize active managers by their level of active risk, with structured managers usually taking less active risk than traditional managers.1 In our view, most investors should allocate risk across the entire active risk spectrum-that is, most equity programs should contain a blend of passive, structured, and traditional equity management. We call this approach the "spectrum strategy." Why are investors better off using a spectrum strategy rather than a barbell? We believe there are four principal reasons. First, on average, the historical risk-adjusted performance of structured managers has exceeded that of traditional managers. Second, we believe these performance differences are the result of inherent methodolog- !In this chapter, structured refers to low tracking error managers, who are often called enhanced-index or benchmark-sensitive managers. Traditional refers to concentrated active managers who usually have higher tracking errors and are less benchmark sensitive.