Does active management work, or do active investment costs only eat profits?

Warren Buffett, arguably the most influential investor of our time, had a bet with a US Hedge Fund manager that the S&P 500 would outperform a basket of funds selected by the Fund Manager over 10 years. He’s now collecting his winnings.

At the height of the markets in 2007, Mr Buffett made a $1m bet with a reputable US Fund Manager that in 10 years’ time, the market index would outperform a basket of funds selected by Protégé Partners. Below is a link to that story.

Active Management suggest investment managers can foresee undervalued companies through rigorous analytical research, forecasting and manager judgement and by initiating a buy at the right time, it can lead to significant gains when sold. For this management of your investment the Fund Manager usually takes a fee in anticipation of the additional value being added.

Passive Management (often referred to an Indexing), allows the investor to invest in line with a selected benchmark and to replicate the returns generated by that benchmark. Generally, the costs to invest in Indexed investments are a lot cheaper due to the investment managers not forecasting, analysing or making investment judgements. The stocks selected are in line with the benchmarks, making the investment costs minimal in conjunction to their Active counterparts.

Our investment philosophy at Byfields Wealth Management hasn’t changed, and our Passive approach to client funds has now been justified by one of the greatest investment managers of all time. Our access to low cost, blue chip Index managers allows us to focus on strategic areas to add value to client portfolios.

With this in mind, is it time to review your personal investment philosophy? Why not give us a call to provide you with a Financial/Investment health check. Because if its good enough for Warren Buffett, its definitely good enough for us!