14 Apr 5 Reasons why active investing still works
I will preface this active investing blog by saying I am a huge believer in index investing.
We have been index investors for our clients BEFORE it became popular. This said the recent bagging around active investing is unwarranted and needs attention. So here are five reasons why active investing is very important.
Number One: I was not going to get specific and I do not advise buying any asset until you talk to an adviser which includes this asset that you may already be aware of. It shares its name with a precious metal and is an active long/short international share fund. Since inception performance which is almost 20 years is 13.49% (as at 31 March 2015) versus the index at 6.53%. That’s double, I’ll say it again, double!
This is still an active investing decision…
Number Two: Active Indexing. Ok, so this is not really active but it is where you actively choose which portions of the index to buy. It may be an index of banks which did very well the last twelve months (as at April 2015) versus an index of resource stocks which did really poorly.
Number Three: Dynamic asset allocation. There are active managers about who only deploy your money to the asset classes that they feel shall make money in the short to medium term. This means if they feel that international shares in a particular country are good value then that is what they purchase for part of the fund. This active investing style also means that if they think everything is going down then they hold to cash. These funds usually target a return above inflation and are conservative in nature. They may miss the booms but they save you in the busts.
Number Four: Managed Futures. If you have not heard of these before this is probably not the article to explain them. In short these funds invest in assets that the average person has no idea over. They take future positions over gold, soft and hard commodities and currencies. Among the most active investing is carried out in these funds.They deploy a rigorous execution strategy and research is conducted by a team including university professors in many cases. The ones we use have a great track record. Furthermore did you know that the Harvard Pension Fund have between a 16%-18% allocation having gone as high as 25% directed to futures funds? Without dropping names the funds we use returned over 8% in calendar 2008 when the remainder of the market had crashed badly. We have data that goes back to 1999 with average return of around 9.68%.
Number Five: Finally, have you ever thought to buy an index of fixed interest products? Probably not the best idea given that there is such a varying amount of fixed interest and it can be simply analysed and purchased based on coupon or fixed rate , current price and the asset value of the issuing company. An index of fixed interest piles every provider together who is looking for cash. This sector probably offers the greatest protection through active management.
As an aside, it goes without saying that if everybody “indexed” and there were no “active investing” managers identifying and eliminating security valuation errors, asset prices would become perfectly inefficient (well away from intrinsic worth).
The information provided in this blog has been provided as general advice only. We have not considered your personal financial circumstances, needs or objectives. Not all will be suited to an active style of management and there are a multitude of other factors you need to consider before making a final decision. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of any 3rd party information provided and accordingly neither the author nor his related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon active investing from such information.