Our independent financial advisers offer both active and passive investment solutions
Our independent financial advisers are not biased towards active or passive investment as we offer our clients both options. At Lonsdale Wealth Management our qualified independent financial advisers always provide clients with personalised financial advice.
Call our financial consultants now in St Albans, Barnet, Ringwood, Ware, Stafford, Harpenden or Leeds/Bradford, or complete our booking form for a free initial independent financial planning consultation.
Passive funds underperform in recent survey
Yodelar Insights recently reviewed 2,950 main unit trusts from across 36 sectors as defined by the official Investment Association. Out of the 2950 active and passive funds analysed only 239 funds were passive funds, the rest were active funds.
Of the 2950 funds analysed only 239 funds or 8% had maintained a continuous top 25% sector ranking over five years. Only four of the 239 top performing funds were passive investment funds, the remaining 235 funds were actively managed.
What is active investing?
The investment team research the relevant markets, stocks and sectors and then decide which stocks to hold in the investment portfolios. The aim with active fund management is to deliver a superior return to the overall market or benchmark. If you invest in an actively managed fund you have the opportunity to make higher investment returns than the fund benchmark, although the investment fees for active investment management are higher. By investing in active funds, you accept the risk that you may underperform the market or benchmark.
What is passive investing?
A passive investment replicates the market constituents, so the investment return reflects the performance of the market or benchmark that is being tracked. Passive investment funds are considerably cheaper because there is no active investment as computers can be used to generate stock weightings. However, there is no opportunity for the fund to outperform the market or benchmark.
In some situations, you may also experience more volatility of returns in a passive fund because these investments replicate sectors that subsequently underperform the market or benchmark. For example, the growth in the technology sector between 1997-1999 and subsequent ‘tech bubble.’
However, at January 2020 more money is invested in US passive funds than US active funds and figures from Morningstar show that only 23% of all active US funds topped the average of their passive rivals over a 10-year period ending June 2019.
Why Lonsdale Wealth Management offers clients both active and passive investment solutions
“As independent financial advisors we offer both active and passive investment solutions for our clients. I am not surprised at the survey results as tracker funds will not normally be top performers, as by their very nature they are likely to perform in the middle of the investment table. However, they are a cheaper alternative to active funds so where costs are a factor and a client’s risk profile supports a passive fund solution, we recommend passive investments. We will also sometimes favour passive Investment solutions with clients that are happy to own active funds. For example, when we invest in North America, we often recommend passive fund solutions as many passive funds outperformed active US funds over the last ten-years.’
‘The survey results demonstrate how difficult it is for anyone to predict how an active fund will perform over five years, but at Lonsdale Wealth Management we always do due diligence before selecting funds for our clients. The cornerstone of our approach to investing is set by the Lonsdale Investment Policy Committee (IPC). Our investment policy committee identifies appropriate investment policies, asset allocation and products so our clients can achieve their long-term financial goals and objectives. Our financial advisers use Morningstar data to review active funds and our advisers invest in mutual funds that are approved by the IPC. We look at factors such as performance, volatility of the fund, the manager history and track record, the investment process, the cost of management, and the size of the fund. We have a preference for investment houses with a strong team bias, where strategists and analysts support the investment management teams. We monitor investment houses, so we are aware of any changes in process or the departure of key investment personnel. By using a stringent research process to review mutual fund groups and their active funds we hope to choose active funds that outperform their benchmark over the long-term, or at least achieve benchmark type returns with less volatility. That said, where a passive solution is deemed appropriate (for instance in a market where active outperformance has been difficult), or where cost is a priority, we will also utilise passive funds. We always review a client’s risk profile before deciding which funds to recommend and we make them aware that the value from an investment and the income from it could go down as well as up. If you are new to investing, we recommend you read our Beginners Guide to Investing and then contact us for independent financial advice.’
Our independent financial advisers are not biased towards active or passive investment, we always recommend the best financial planning solution for you. Contact our experienced independent financial consultants now or complete our booking form for a free initial financial planning consultation.