Financial & Legal News

INSIGHT: Is passive investment for you?

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Investors have 2 main choices when planning investments: active, usually run by a professional fund manager,​ and passive, that simply track a market. Here, Pearson Financial Adviser, Jonathan Beardmore, takes a looks at whether the 'actively managed funds' are really worth it.

Anyone who has investments most likely has encountered reams of marketing with the strap lines.

You may also notice in your portfolio that all your funds have earned “5 stars”, “5 crowns” or even a “triple A rating” (it’s unclear whether you want crowns, stars or A’s).

This is just one of a few examples of fund houses trying to showcase their latest fund manager and/or fund range.

The fund management industry has constantly tried to justify itself, fund managers even have self-appointed styles such as “contrarian” “top down” “bottom up” “fundamental analysis” and “value investing”.

Conceivably you could have a “5 crown rated bottom up best of breed income fund”.

Now all you have to do is assemble 10 funds across stylistic, geographical, asset class and industrial sectors in line with the amount of risk you want (oh and don’t forget you need to have adequate crowns/stars/A’s) and you have a portfolio!

By now you’re really taking it seriously and your living room has more flat screens in it than Dixons, you have subscribed to several research publications per day, you can only leave the house when there is a break on the Bloomberg channel and you need large cooling fans for all your new computing power!

Clearly this is not a reflection on how private individuals invest money but it does give you an indication of the complexity involved when picking and monitoring fund managers.

Most IFA’s and fund managers however, would argue that as long performance is good who cares about the complexity and cost; just show me good returns.

This month a group of boffins from the Pensions institute at the Cass Business School released a paper.

Its results won’t surprise fund management sceptics such as ourselves, however, it will require a bit of quick thinking from the fund managers and there followers.

The New research suggests that ninety-nine per cent (99%) are not really so clever after all.

Researchers examined 516 UK equity funds between 1998 and 2008, and found that just 1% of managers were able to return more than the trading and operating costs they incurred.

But even those managers pocketed for themselves any value they added in fees, leaving nothing for the investor.

All the other managers failed to deliver any out performance either from stock selection or from market timing.

Contact us

To speak to Jonanthan Beardmore or any member of our Financial Services team, please call 0161 785 3500 or email

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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