Making the call and actively managed funds
The argument for actively managed funds states that by using the knowledge and expertise of a fund manager, they can outperform the average index tracking fund.
But the challenge they face is the costs associated with the active funds, not just the total expense ratio, but dealing costs, platform charges and performance fees. This has been especially crucial in recent months, as stock markets have swung violently, and charges have eaten into performance.
Still, active funds have a role to play, not least by the fact that fund managers can diversify their assets, and adopt different strategies depending on their sentiment, and how they think markets and sectors will perform over varying periods of time.
This asset allocation can help mitigate risk, which in uncertain times is useful.
Many think that a sensible investor’s portfolio should have a mixture of funds, both active and passive to benefit from the advantages of both. After all, asset allocation in active funds can have a downside, especially if a manager simply diversifies, just because he can. In these cases, the different assets may correlate with each other more than they should.
Nonetheless, fund management is a skillful task and requires considerable knowledge for the manager to make a success of it - more perhaps than the average financial adviser. For this reason, despite the stock market swings, active funds remain useful.
Melanie Tringham is features editor of Financial Adviser
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