ACTIVE MANAGERS RESPOND

THE AVERAGE actively managed fund won’t outperform the index after fees, but every passive fund will underperform, by the fees it charges, the index it tracks, says Duncan Artus, a portfolio manager at Allan Gray, which won the Raging Bull Award for the best South African management company of 2017. “The trick is to find an active manager that delivers above-average performance over the long term.”

He says performance tables do not disclose the risks that a fund took to achieve a return, “and part of our job is to manage risk as well”.

Artus says that choosing which index to track, or deciding the level at which to cap a share in an index, is itself an active investment decision.

Over the past few years, he says, the South African market has been driven to a large extent by the “incredible” performance of a single “outlier”, Naspers (and indirectly by Tencent). Even if Naspers’s weighting in the index were capped at 10%, it made a strong contribution to the returns an investor earned simply by investing in the market.

PSG was the second-best manager of South African funds last year. Asked whether he thought the benchmark indices enabled investors fairly and accurately to compare the performance of actively and passively managed funds, Adriaan Pask, the chief investment officer at PSG Wealth, says: “For the purposes of comparing the straight-line performance of the average manager after fees to the straightline performance of the indices before fees, they are fine. As a rule, however, there are always shortcomings to using averages, as there are managers that beat the index by healthy margins over prolonged periods, but averages are not designed to highlight these opportunities.

“In addition, by solely considering straight-line performance in any comparison, you neglect many other components that underpin a prudent analysis – in particular, aspects relating to risks.”