Charity Investment

Active versus passive investing: the decision is not binary

Alex Baily, Portfolio Director, investigates...

10/10/2016

The passive market has grown exponentially over the past decade and in recent years, many investment columns have been devoted to the socalled ‘active versus passive’ debate.

Those in favour of actively-managed funds highlight that fund managers can take advantage of investment opportunities as they arise, in addition to those created by market volatility. In contrast, they claim passive funds have little flexibility to ‘swim against the tide’ and therefore guarantee underperformance (after fees).

The passive cohort, however, highlight the reams of academic studies that show a large portion of active managers underperform the market and there is the perennial question of fees.

In our opinion, it is not about choosing one side over the other. We believe the active versus passive debate is outdated because it is not a binary decision to invest in an actively managed fund over a tracker fund, or vice versa. For us, it is simply about selecting the most appropriate investment vehicle that will achieve the best outcome for our clients.

Initially, we make an asset allocation decision such as increasing exposure to a specific part of the market because it looks attractive. We then assess both the active and passive opportunities and carefully analyse the most suitable one for the client depending on their risk profile and objectives.

Finding the right tracker

Making a decision to simply ‘buy the market’ via an Index Tracker Fund or an Exchange Traded Fund (ETF) is not as simple as you might expect.

Like actively-managed funds, passive funds have their intricacies so it is important to look under the bonnet to ensure you understand what you are buying. Here are a few pointers to help with the process:

Author

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Limited 12 Moorgate, London, EC2R 6DA. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

Contact Cazenove Charities

Achieving your charity's investment objectives takes time and thought. To find out how we can help you please contact:

Giles Neville

Giles Neville

Head of Charities giles.neville@cazenovecapital.com
John Clifton

John Clifton

Business Development Manager john.clifton@cazenovecapital.com