The clas­sic de­bate about in­vest­ment ap­proaches has some com­mon ground

The clas­sic de­bate about in­vest­ment ap­proaches does have some com­mon ground, writes Jo­hann Barnard

Financial Mail - Investors Monthly - - Contents -

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

Pic­ture: iSTOCK

Jac­ques Plaut … Must earn the fees

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