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The great debate

02 March 2017

Chris Ralph, Chief Investment Officer, makes the case for active management, in light of the rise of passive alternatives.

One of the most significant trends in finance in recent years has been the rise of passive investing. Recent studies show that some 111 of the 500 companies on the S&P 500 are now majority-owned by passive funds and investors1.

At its core, passive investing seeks to capture market growth while minimising administrative costs. It generally achieves this by tying itself to an index, such as the FTSE 100, the S&P 500 or the Nasdaq. Instead of relying on the stock selection skills of managers, passive funds will tend to invest across the index on the basis of market capitalisation and aim to benefit from the long-term returns of equity markets.

So what about the alternative, active management? Active management itself requires significant resources, as does selecting the best active managers. In the long run, however, the most successful investors are those who hold the best companies, not those who blindly follow an index. In the coming weeks, we will be writing further on the theme of active and passive management but, by way of introduction, we recommend the following video, in which Chris Ralph, Chief Investment Officer at St. James’s Place, offers some perspective on the issue.

 

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested. 

1 2016 U.S. Shareholder Activism Review and Analysis, accessed 1 March 2017

Some of the products and investment structures documented within this article will not be available to our clients in Asia. For information on the funds that are available please get in touch.

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