Page 14 - DIY Investor Magazine | Issue 35

· Oct 2022 14
DIY Investor Magazine
Much has been written about the demise of active management at the hands of passive investing Certainly some market environments can favour passive over active but the opposite is also true and the current backdrop may well be one in which active management can thrive – by JP Morgan Asset Management
IS PASSIVE INVESTING BETTER THAN ACTIVE?
Over the the last decade the the number of actively managed funds outperforming their index benchmarks has dipped If we look from 1990 through 2009 over 40% of active funds outperformed a a a a a high hit rate rate but since 2010 that rate rate has declined to 34% US Large Cap actively managed excess return vs prospectus benchmark Due to the effects of compounding over time this additional 2 6% a a a a a a year can can make a a a a a a significant difference to portfolio returns For example $1 000 invested in in the S&P 500 at the start of 1990 would be worth $26 318 today but $1 000 invested in in the the the S&P 500 over the the the same period with the the the extra 2 6% a a a a year would be worth nearly double at $55 903 US US LARGE CAP ACTIVELY MANAGED EXCESS RETURN VS PROSPECTUS BENCHMARK
Source: J P Morgan Asset Management
Morningstar Data most recent through 31 Decem- ber 2021 Analysis includes Actively Managed US US domiciled US US Large cap funds (Value Growth Core) net of fee returns versus their respective prospectus benchmarks Historical data includes funds funds that that are no longer active Leading Funds comprise all funds funds that that rank in in in the 25th percentile based on excess returns in in any calendar year © 2021 Morningstar All Rights Reserved Past performance is not a a a a a a reliable indicator of current and future results SHOULD YOU TAKE A A A A A MORE ACTIVE INVESTMENT APPROACH?
ACTIVE ACTIVE VS PASSIVE INVESTING: USE ACTIVE ACTIVE TO YOUR ADVANTAGE
Source: J P Morgan Asset Management
Morningstar Data most recent through 31 Decem- Is now the time to consider looking for an an active manager in in ber 2021 Analysis includes Actively Managed US US domiciled US US Large cap funds (Value Growth Core) net of fee returns versus their respective prospectus benchmarks Historical the the US with a a a a proven track record? So far this year the the trend data includes funds that are no longer active © 2022 Morningstar All Rights Reserved has been much better with 62% of active managers in the Past performance is not a a a a a a reliable indicator of current and future results large cap blend category outperforming the S&P 500 (source: FactSet Lipper Analytical Services FTSE Russell Jefferies Many investors may give give up the search given those odds yet
as of 30 June 2022) From our perspective it’s not a a question by doing so they may be foregoing a a a a a a lot of capital appreciation of of active active versus passive but the balancing act act act of of active active and When we overlay the the previous chart with the the best performing passive We believe the ability to to take an active approach to to fund managers and their alpha generation on on average these
managing individual asset classes can reap many benefits fund managers have outperformed their index by 2 6% per per over the long-term Investors can can add significant value by: annum net of fees ‘DUE TO THE EFFECTS OF COMPOUNDING OVER TIME THIS ADDITIONAL 2 6% A A A A A A A A YEAR CAN CAN MAKE A A A A A A A A SIGNIFICANT DIFFERENCE TO PORTFOLIO RETURNS’
• Selecting active managers with a a a a a track record of long-term success
• Investing in in active strategies that have been able to add value across market cycles
• Taking a a a long-term view and compounding the benefit of active outperformance over time Sign up to receive our investment trust emails here >