Debate continues on active vs passive fund management

Oct 03 2017 17:50

Cape Town - One of the most contentious topics in investment management, the active versus passive argument, gained momentum at a recent live debate between two local investment management experts.

In the passive corner was CEO of 10X Investments and long-time champion of index tracking, Steven Nathan, who faced off against the active investment veteran, Neville Chester, a senior fund manager at Coronation.

“As the opinions for either side grow, it’s becoming near impossible for an impartial investor to know which strategy is truly in their best interest for securing a financially comfortable retirement,” said Nathan. “We wanted to provide a measure of clarity for people.”

While on a global level, actively managed investment funds are losing popularity, with millions of assets under management flowing into index-tracking funds more than 90% of South Africa’s unit trusts remain actively managed.

The recent debate saw Nathan and Chester unpack various arguments with particular relevance to the South African retirement savings environment. The debate brought to light merits and drawbacks of each investment style and the audience definitely left feeling a lot better informed.  

Nathan’s argument was simple – South African active fund managers "charge exorbitant fees to gamble” with people’s life savings". He gave an example that compared an investor’s chance of selecting a successful active fund manager with a Blackjack player who already has two Kings in his hand, drawing an Ace. Mathematically, Nathan said, the Blackjack player is twice as likely to draw an Ace as the investor is to choose the winning fund manager.

Nathan added: “Investing for a secure retirement should not be a gamble.”

In rebuttal, Chester argued that success was possible with active management, and pointed to the consistent outperformance of Coronation’s longest-running equity fund.

“Active managers can and do outperform the market, and while passive investing has played a very important role in exposing active managers who are not performing, this does not detract from those who are able to achieve alpha,” Chester added.

A second debate is planned for late October or early November in Johannesburg.

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