Sent: 08-02-2011 12:08:10
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Active Investment Managers
Last week I dealt with the issue of fairly poor returns from some larger super funds over the last 10 years as detailed in the recent APRA Annual Statistical Bulletin.
You might recall that I noted that perhaps some superannuation investors are noticing that index funds are not only cheaper but also seem to produce better returns.
Right on queue with these thoughts the Knowledge@Wharton email published an article titled, "If Index Funds Perform Better, Why Are Actively Managed Funds More Popular?"
The report deals with the US market which is not exactly comparable with Australia. Nevertheless the following quotes are worthy of some note:
- "Over the 23 years ending in 2009, actively managed funds trailed their benchmarks by an average of one percentage point a year
- "Investors use active management in a kind of arms race to unearth a limited number of bargain-priced investments
- "Many investors who prefer active management understand the corrosive effect of higher expenses, and know that managed funds as a group do poorly over the long term. But many bet they can select the fund managers who are better than average. To do that, the manager must find assets that are "mispriced." Their odds are better when there are fewer managers in the hunt, just as a gold prospector does better when he is the only one panning a stream
- "The active management industry exhibits decreasing returns to scale: any fund manager's ability to outperform a passive benchmark declines as the industry's size increases. As more money chases opportunities to outperform, prices are impacted and such opportunities become more elusive
- "If our rational investors thought returns to scale were constant, the active management industry would have disappeared in 1969!"
During the week Russell Investments predicted that ETFs would rise to $6b in FUM in 2011.
The race for the retail investment dollar continues and if you believe the Wharton research it looks like active managers will continue to have a fair slice of the action.
Finally please consider purchasing a copy of "A How To Book Of Self Managed Super Funds". You can look at the contents page at the following link: http://www.atcbiz.com.au/r.php?r=0mjd6ne
The 4th edition was released just before Christmas.
For details of the changes made from version 3 to version 4 visit:
As you'll see from the list there have been many changes.
Two purchase options are available - once only subscription - $55 inc GST - or an annual subscription will gives you access to all the updates made throughout the year ($120 inc GST). The book can be purchased at the following link: http://www.atcbiz.com.au/r.php?r=5a4agqb
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