Many active managers are closet indexers. The real cost of forcing a skilled manager into a low tracking error is the limit to the upside.
Tag Archives | active management
The long bull market allowed passive investing to prosper, but over a whole cycle, companies with better fundamentals will outperform weak ones. The market is finally showing some dispersion.
Active managers trade more often and in larger amounts than passive managers do. Costs incurred from trading, in aggregate, can be substantial and ought to be considered in the decision to use active strategies.
The concept of factor investing has been around for decades and features in many portfolios. A considered and patient use of factors can enhance investment performance but not short term in all market conditions.
Inefficiencies in the small caps index means outperformance is common but that should not cost 60% more in fees than large caps. Large caps have outperformed small caps over the long term but with significant variability.
It’s worth deciphering how active ‘active managers’ are, whether their outperformance is sustainable, whether they cancel each other out and whether they are true to label. Know what you’re paying for.
The active v passive debate has deflected attention from a more important issue, a focus on managing to client goals. Plus active management has suffered relative to passive by the central bank-driven uplift of all assets.
Most people focus on the threat of passive funds and ETFs to active investment management, but in this seminal paper exclusive to Cuffelinks, Jack Gray warns that Artificial Intelligence has barely scratched the surface.
With the 35-year bull market in bonds coming to an end, passive fixed interest portfolios are at the mercy of the index’s high levels of interest rate risk and compositional skew towards low return investments.
While there is a role for both active and passive investments in portfolios, the impact of relatively small reductions in management fees can compound to large amounts over a lifetime of saving.
Exchange traded products have had another strong year of growth in 2016. Their popularity with investors, both in Australia and globally, is driving innovation and it will continue in 2017.
Market performance and outperformance can come from many sources, but the main thing to watch for is that you’re not paying high ‘alpha’ fees simply to achieve market ‘beta’ returns.
Making a passive investment requires an active decision, and since index-based funds are structured using market prices, they build in influences of the active factor of price momentum.
It’s difficult for investors to find active fund managers that consistently outperform the market over multiple periods, and the claim that active managers do better in falling markets also lacks recent evidence.
The term ‘alpha’ may be financial jargon, but for fund managers, it’s the highly sought-after prize for successful active management that justifies fees charged. But how do you select a good manager?
The investment performance of super funds and other investment managers has historically been measured against pre-tax indices. Once tax is taken into account, the return on investments is quite different.