investment - How to Pick Managed Investments Travis Morien...

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How to Pick Managed Investments Travis Morien Compass Financial Planners Pty Ltd [email protected] http://www.travismorien.com
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Types of Managed Funds There are two types of fund: Index funds seek to capture the performance of an asset class as cheaply as possible Actively managed funds seek to add extra value on top of asset class performance through selection and timing, using a variety of research strategies
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Index Funds Adopt a passive approach. Main focus is on achieving maximum diversification at a minimum expense by holding a fixed percentage of every security in the market, or a representative basket. Performance is determined by the asset class, index funds make little attempt to do better. If the asset class does poorly, index funds do poorly. If the asset class does well, index funds do well. These funds are quite boring because they offer no potential to beat the market, most investors aren’t even aware they exist. Many “sophisticated” investors (and those that aspire to be) flatly refuse to even consider indexing because it is just too mediocre and too dull.
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Active funds When you buy an active fund, you are making a bet on a team of professional investors, and their ability to generate high returns. May perform quite differently to the asset class as the manager adjusts the portfolio based on their research. You pay extra for this research, usually about an extra 1%pa. It seems defeatist to settle for asset class returns. Why would anyone settle for average performance when you can be above average?
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What people think of active fund managers Active fund managers enjoy a strong marketing edge over passive managers. Many attain celebrity status and their opinions on what the market is doing are highly sought after by the media. Great faith is often placed in their abilities, and what they do is often portrayed as glamorous. Some fund managers are paid seven figure salaries and bonuses and are often aggressively headhunted by rival firms. Above all, active fund managers are usually perceived to be “interesting”. Picture by Vanguard Investments.
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In contrast to their more colourful active counterparts, passive fund managers are seen as the “nerds” of the investment business. Their performance objective is only to match an index. Is this deliberate mediocrity bordering on negligence? You probably wouldn’t want to be stuck next to a passive fund manager on a long flight, because all they ever talk about is tax efficiency, cost minimisation, diversification, asset allocation and buy and hold investing. Where is the fun in that? Passive fund managers claim to have no special insights into what the market is going to do, and have no clever strategy that they intend to employ to “beat the market” by a large margin, often recommending investors “stay the course” and hold a diversified portfolio through thick and thin. Above all, passive fund managers are usually
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This note was uploaded on 05/20/2010 for the course DOF AAf001-6 taught by Professor Changchungdo during the Spring '10 term at 카이스트, 한국과학기술원.

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investment - How to Pick Managed Investments Travis Morien...

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