WealthDFM | March 2021
ACTIVE INVESTING
Why active investing
Outperforms passive Harry Nimmo, Investment Leader, Smaller Companies at Aberdeen Standard Investments, has firmly held views on why active investing outperforms passive. Here, Nimmo uses data to back up this view and to show how active managers' participation in the market extends much deeper than matters of relative performance.
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here are 172 actively managed funds with a track record over a 10 year period with combined assets under management (AUM) of around £156 billion. 73 (42.4%) of these funds have outperformed the MSCI AC World Index and manage £110 billion – or 70.5% of the total invested in the sector. By this measure, active managers have handsomely outperformed. The pattern is similar across all the major sectors. In the UK All Companies, Europe ex UK, North America and Japan Investment Association sectors, active money-weighted performance was better than in the global group. In Europe ex UK, a whopping 87.5% of the
It’s fair to say that across all geographic sectors, money tends to gravitate towards the best-performing funds
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actively managed asset outperformed the MSCI Europe ex-UK index for example. The trend is in evidence across periods shorter than ten years, too. It’s fair to say that across all geographic sectors, money tends to gravitate towards the best-performing funds. This is what should happen when wealth managers and financial advisers are doing their jobs. The UK Smaller Companies sector gives us a stark example of this trend. There, 37 of 44 funds that have existed for the past decade have outperformed the Numis Smaller Companies (excluding Investment Companies) Index. These 37 funds account for 93.5% of the sector’s AUM. What is true is that many sectors contain far too many funds. Many will be under-performing, or taking in little money. Asset management companies often keep funds open longer than they should due to the expense and hassle of closing them down. The good news is that, as mentioned above, the flows tend to go to those funds that are producing better returns. When passive managers criticise their active counterparts, they tend to talk only of the number
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