The classic debate about investment approaches has some common ground
The classic debate about investment approaches does have some common ground, writes Johann Barnard
In the debate over whether an active or passive investment approach is best, it is comforting that neither side approaches the subject with the zeal of a fanatic. Pragmatism is an invaluable trait in investment professionals charged with managing investors’ money.
Any attempt to settle this debate leads to a stalemate.
Fund and portfolio managers are tied to their approach with a conviction that their investment choices are in a client’s interests. But their pragmatism allows them to acknowledge that the opposing view has merit.
And therein lies the answer: any investment choice is based on an investor’s circumstances, objectives and appetite for risk.
Investors Monthly has polled the opinions of leading investment professionals from the opposing active and passive philosophies to gather their thoughts and insights. These views provide some common ground that allows opponents to avoid any loss of face.
Given current market conditions of uncertainty and volatility and lower expected returns, here is what fund and portfolio managers have to say. The active investment argument Jacques Plaut, portfolio manager at Allan Gray
“There are good arguments on either side of the debate. For the man on the street, the worst thing he can do is to be with a poor manager that underperforms over the long term, while paying fat fees. But if you’re with a manager earning his fee by delivering returns, that is better than being in a passive fund.
“On the whole, it is a good idea for investors to question the value for money they are getting for their fees. I’ve seen savings products sold by the big insurers with total expense ratios of 3% (before performance fees) — the odds are stacked against savers who are in these products.
“I’m not sure if a passive investment is a safer route. What often happens in this passive vs active debate is that investors tend to look at the previous year’s returns. The problem is that if you look back over a short period of time, you miss the impact of
Jacques Plaut … Must earn the fees