At Stylo, we use low-cost cost index tracking strategies to build and manage global portfolios for our clients.
This FT article refers to large active managers as “perennially underperforming the stock market after fees”.
Most investors know this but stick with active managers as they feel that smart advisers will help them find the winning funds. But this article from the Economist, based on the findings from an academic paper into consultants advising on US actively managed equity funds, concludes that:
“we find no evidence that these (the consultants’) recommendations add value, suggesting that the search for winners, encouraged and guided by investment consultants, is fruitless.”
The article then asks why clients use consultants. It posits:
- the “hand-holding principle”, i.e. “choosing funds is tricky and clients feel cautious about doing it on their own. They also want someone to blame if things go wrong. Investment consultants act as “money doctors”.”
“But the most likely reason is that clients are unaware of the conclusions of the research.”
ETFs are simple, transparent, liquid and low-cost investment funds.
Investors are coming around to the benefits of this structure and the growth in ETF assets around the world has been nothing short of spectacular.