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Active or passive investment management?

by Sable International | Sep 08, 2011
  • As advisers we find a wide range of different views on the active/passive debate. While opinions are strong on either side few seem clear on when either approach is appropriate.
    canary-wharf-london

    To clarify: Passive management is when you purchase a portfolio of funds that track major equity, bond or property indices. The tracker funds are cheaper because a computer system will do most of the work matching the underlying portfolio (or synthetically matching portfolio returns) to the composition of the index.  As such you don’t pay an expensive fund manager an annual fee to try and ‘beat’ the market as you would in an actively managed fund.  Some argue that research shows very few fund managers manage to ‘beat’ the market in the long term. I think this oversimplifies a complex topic.

    Fund managers will struggle to consistently beat a big well researched market (like the FTSE or the DOW) when that market is in a steady forward direction.  However, in smaller or more incoherent markets (like emerging markets, specific asset markets or property markets) information (and therefore pricing) is more likely to be imperfect so the research the fund managers do is more likely to benefit the overall return.  However global markets are currently riddled with uncertainty and  market participants and policy makers alike are trying to unravel patterns in a vast ocean of information as the global economy reshapes under the enormous stress of global deleveraging. We do not feel this is the type of market where you can buy the index and hope for a decent return. However the overall degree of volatility is without doubt creating opportunities in many markets. We feel that you need the best fund managers to find these opportunities and to avoid systemic risks as they surface. These conditions have also created the perfect conditions to find the best performing absolute return fund managers.

    Here at Sable we’re of the view that it’s essential to have a globally diversified portfolio. This portfolio needs to be well researched and have a degree of tactical and absolute return exposure.

    For any questions on your investment strategy please contact the author Mike Abbott at wealth@sableinternational.com

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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