It’s happening again. Every time markets take a step back, as they have done year to date, people loose a little bit of the love they had for their Index Funds and Exchange Traded funds (ETFs). Turning back to actively managed funds in times of trouble has been seen in past market cycles and it’s happening again.
Investors with any knowledge and a little time on their hands can create a portfolio of any type of investments and generally do quite well over the long term. The problem is that most investors don’t have the extra time to do their homework. They instead rely on advisors and wrap accounts and they assume that they are buying in to a bullet proof product. Once they take the time to see if the grass is greener on the other side they will generally find that there is a better option, and there usually is isn’t there?
Once they have made a little effort to investigate, they seem to have a desire to harness this newfound knowledge and step in to the world of the do-it-yourselfers. In an advancing market it’s easy to poke holes in many of the active managers (mutual funds) as the new do-it-yourselfer picks the top performing sectors via ETFs or index funds and he looks like a hero. ETFs and Index funds do have a lot of appeal by providing exposure to limitless sectors and asset classes as well as global diversification. All this is available with a very low management expense ratio (MER).
The truth is when compared to the majority of actively managed funds, this strategy does almost seem to make sense, the flaw in the strategy is that active management works…. If done right.
What is generally missing with ETFs and Index funds is the ability to be selective. You are generally buying an index or a sector with the good and the bad. Active management possesses the ability to selectively choose the right investments in any given asset class or sector. This, of course, leads to the possibility of the fund manager being right, or wrong depending on their opinion at the time. But by doing your homework and creating a portfolio of actively managed funds with managers with proven track records to perform well in both advancing and declining markets you can beat the market timers and those that think mutual funds are for the non educated.
It actually takes more effort to create a properly designed and actively managed portfolio but the resulting portfolio can be far superior to any ETF or Index Fund portfolio because there is the potential for additional value to be built in to the portfolio. This becomes more obvious in a declining market where an ETF investor rides the wave down with the entire index. The other option is to time the markets, which has proven to be virtually impossible to do efficiently. An investor has to know when to get out and when to get back in, and this is no easy task.
It’s at times like these when an actively managed portfolio gets an opportunity to show what makes it so special and it can demonstrate why it provides a valuable service over the long term. Again, if done right, an actively managed portfolio can beat the markets in good times and bad if the management within the portfolio (the managers themselves) are truly active. This doesn’t mean market timing; instead it means constant reevaluation of the securities within the fund to determine if there is continuing value.
There are many poorly designed actively managed portfolios out there just as there are many poorly designed ETF portfolios. Then there are some actively managed mutual fund portfolios that are extremely tough to beat. Portfolio4less.com offers 6 different portfolios ranging from conservative to aggressive. The difference between what is offered by portfolio4less.com and much of the competition is the attention to detail. Not only are the portfolios designed by selecting from a massive base of Canadian mutual funds but the portfolios are also constantly monitored and can and will be modified by portfolio4less.com as times change and opportunities arise.
The only way to truly verify if an actively managed portfolio can beat an ETF portfolio is to do a comparison. Visitors to www.portfolio4less.com [http://www.portfolio4less.com/] are offered the ability to compare their portfolios to any of the 6 portfoli4less.com portfolios. There is no charge for this service and prospective investors are emailed a detailed, personalized comparison report that will help illustrate which portfolio strategy has proven to be more efficient.
Active Management can work…If Done Right
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated.
The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. However, please call us to discuss your particular circumstances at 1-866-466-4745.