There were strong relative flows to passive:
- In the US mutual fund (unit trust) and ETF savings pool, net flows in 2016 were $340bn out of active and $505bn into passive. Even more dramatic is the story for equity funds since 2008; investors have invested $1.3trn into passive equity funds and withdrawn $0.9trn from active equity funds. That’s a $2.2trn switch in investment style over the period!
Source: Morningstar Direct Asset Flows, Financial Analyst Journal.
- In the £1trn UK asset management industry. Net retails flows into passive for 2016 (until end November); Passive +£4.4bn; Active -£3.2bn.
Source: The Investment Association.
- Global ETF Assets achieved record inflow for 2016 and ended the year with total assets at $3.4trn.
Active investing is facing crucial challenges:
The FT published an article this week posting “the end of Active investing?” highlights three crucial challenges for active investing:
- Performance and Survival: The vast majority of US active managers fail to match their chosen benchmarks over ten years and 40% “stumble so badly that they are terminated before the 10-year period is completed”. The US is about 50% of world stock markets and a similar trend is seen around the world.
- Investment markets have become more effective and efficient making it difficult to outperform:
- Investment research has increased significantly with professionals involved in price discovery growing from 5,000 to over 1m over the last 50 years.
- Instant communication of information world-wide via Bloomberg terminals and other internet services.
- Increases in regulation ensuring fair disclosure of information to all investors.
- High fees in a low return world: Consider the options for today’s global investor – “if stock market returns over the next several years average only 6 to 7 per cent and bond returns only 2 to 3 per cent (as the consensus expects) will investor clients still be happy to pay over 100 basis point in fees when most active managers continue to underperform their own chosen benchmarks?”
Stylo Model Portfolios
We have been managing global portfolios using low-cost investment strategies for the last two years. Our clients include, the BCI BetaPlus Balanced Fund, the Prescient Umbrella Funds, charities and high-net-worth individuals.
I have attached Morningstar Snapshot Reports of our three main risk-profiled model portfolios:
- Global High Equity -targeting 75% equity exposure
- Global Balanced – targeting 50% equity exposure
- Global Low Equity – targeting 25% equity exposure
These model portfolios beat more than 80% of their peer group, after accounting for costs.
Source: Morningstar Inc, Stylo Investments; considering the returns of the top performing 1,000 funds with a comparable asset allocation to the Stylo model portfolio and domiciled in Europe.
Past investment returns are not necessarily indicative of future returns.
Please read disclosure regarding investment returns here.
We also have more specialised model portfolios (currency hedges, ESG/Shariah compliant, etc.).
We believe we add significant value to you, the adviser.
- We evaluate the thousands of ETFs available and select ones we believe are most appropriate for each asset class or sub-asset class.
- We then package risk-profiled solutions using these ETFs.
- You can now rest assured that your clients are in portfolios that match their risk profile, are well diversified, have low-cost and typically beat the vast majority of comparable actively managed funds.
- We can co-brand client statement and the client portal with your brand.
You can access our portfolios on the tax-efficient Old Mutual International platform using the custodian option. We are approved discretionary investment managers and use Saxo Bank as our custodian.
Complete Stylo’s contact form to find out more about how we can help you with your global portfolio.