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Special Report

Making the call and actively managed funds

Published by Financial Adviser | Jun 13, 2012

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

IN THIS REPORT
  1. Best of both worlds

    An alpha-beta investment approach requires the effective combination of managers’ performance profiles

  2. Active asset allocation

    Outperforming the benchmark is proving challenging in the midst of chaos in the global financial system, but various allocation strategies are...

  3. Efficient market flaws

    As a principle fee disclosure is a good idea, but calls for full disclosure on dealing costs may lead to confusion

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