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Active or passive: why do you have to choose?

by
Louis Coke

01.08.2017

Many investors choose to use collective funds to spread the risks of investing. This has been a good strategy for many decades and serves its purpose very well. Generally, there are two different approaches to this- either ‘active’ or ‘passive’.

Active management of a fund typically means that there is a team of fund managers and analysts choosing which investments to buy. It is called active management because the fund managers choose the individual investments to buy, when to buy them and importantly, what not to buy. In exchange for providing this service, the fund managers typically charge a percentage of the value of the fund.

Passive funds take a different approach. They will have a stated index that they aim to replicate (for example, the FTSE 100). Then, rather than having a person choosing the investments and the timing of their purchases and sales, a computer automatically invests the investors’ money and buys an appropriate amount of every share making up the index. The fund manager still charges a fee, but it is usually much lower than active management because of the lack of human involvement.

The question of whether investing in active or passive funds is the better approach has been debated many times before. In the end it seems to us as though the answer may well be ‘it depends’. It depends on your circumstances, your personal preferences, and your view on the investment market environment over the coming few years.

Many investors have taken quite strong views on the active against passive debate. At Charles Stanley, we are very fortunate to have a strong research capability across both areas, so we do not have to choose one or the other.

Our view on investments is that you should buy the ones you need, and leave out the ones that aren’t going to help you achieve your objectives. As an Investment Manager, if sometimes that means that we are investing in mostly passive or mostly active investments, so be it.

At Charles Stanley, we have confidence in this approach because of our in house research. Having coverage on both sides of the debate, we can take an informed view and suitably invest our clients’ money.

The value of investments may fall as well as rise and you may not receive back the amount you originally invested.

To discuss any investment issues, please do not hesitate to contact me.

 

Louis Coke, Chartered FCSI

Senior Investment Manager

Tel 01483 230 824

Email: [email protected]

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