MAY 2012
macroeconomic and political movements. While in no way suggesting that investors need to “churn” their portfolios, they have to be more active in their asset allocation and their fund selection in future. Fortunately, this also coincides with a period in which it has become increasingly cheap and easy to move investments. There is also broader asset allocation expertise and detailed fund research available. Either way, it should give investors more incentive to call upon the services of advisers from here. There is a danger of extrapolating the experiences of the equity market out to wider investment markets. The volatility of the equity market makes headlines, but few talk about the bull market in bonds that has been seen over the past decade. Let us not forget that this is where the majority of investors have had their money. This may now be drawing to a close, but many investors have participated.
There have been some extremely difficult years brought about by a credit crisis of new and frightening proportions, but there has always been something to buy. Looking at the past four calendar years, as the markets have been recovering from the crisis, there are plenty of sectors that have seen only minimal drawdowns in weaker markets and significant rises in stronger markets. For example, all the following sectors have seen drawdowns of no more than 5% on average in any one of the four past calendar years: absolute return, global equity, global bond, global equity income, North America, sterling corporate bond, sterling strategic bond, sterling high yield bond, UK equity income, UK equity and bond income, even technology and telecoms.
This has happened, lest we forget, as the biggest trading bloc in the world – the eurozone – has been on its knees. Also, these are only averages and mask much stronger performance from individual managers. There is an increasingly strong argument for a more active and nuanced portfolio to deal with the current market conditions. Active fund managers in every asset class have the tools to manage through the volatility, yet investors are increasingly favouring passive solutions. The latest quarterly figures show that net retail sales of tracker funds are the highest on record at £661 million. Again, it is understandable that investors should want to avoid complexity, but the problems with an entirely passive approach have been well-documented. As John Chatfeild-Roberts, head of the Jupiter fund of funds team points out in his book Fundology: “following the herd only works when markets are rising”. If growth in the global economy is likely to be hard-won, with markets volatile but flat in response, a passive investment will make investors precisely nothing. Or rather, nothing less fees. Chatfeild-Roberts points out that wherever there is no qualitative judgement on a portfolio, anomalies are bound to occur.
The argument for passive has been that the right active managers are difficult to find. Yet, Invest is full of high-quality managers, who have been at the helm of their funds for years, delivering consistent, top-quartile performance. Some have had the occasional difficult year, but this should not be used to condemn all active management. After all, the active manager can learn from a bad year and use it to improve performance in future. As many of the skilled fund selectors on pages 14 and 15 point out, it is simply a case of knowing your manager, knowing the type of markets in which they will perform and which markets may not suit them. Active managers may not always outperform, but at least they have the capacity to do so. Again, fund manager performance is extremely transparent, so investors should know whether they are with a leader or a laggard. The active fund management industry has strength and depth, as this supplement shows. Inside you will find some of the strongest talent the industry has to offer. If nothing else, it should be a wake-up call for those sold on the easy arguments of a few media pundits. Active management has an important place in helping investors build for the future. They neglect it at their peril.
CHERRY REYNARD Editor, Invest
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INVEST, Wells Point, 79 Wells Street, London, W1T 3QN
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Editor: Cherry Reynard Production editor: Sue Balding, Terry Stone
Contributors: Paul Farrow, Rob Gleeson, Tom Hirst, Adam Lewis, Harriet Meyer, Kira Nickerson
Art director, financial services: Stuart Woodward Assistant art editor: Matt Stevens Junior designer: Alison Bartlett
Division production manager: Simon Hadley Division deputy production manager: Nita Patel Production assistants: Gemma Bailey Circulation manager: Ian Paxton Display sales executive: Fraser Hughes Sales manager: Chris Watters Sales director: Ben Tobin
Group sales director: Richard Fletcher Publishing director: Patrick Ponsford
Published by Centaur Media. Printed by Pensord Press.
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Active
managers may not always
outperform, but at least they have the capacity to do so
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