This months e-mail contains a somewhat controversial article by David F. Swensen, the chief investment officer at Yale University and was published in the Op-Ed section of the New York Times on August 13.

It is controversial as he contends a number of things including:

• That Managed Funds (called Mutual Funds in the U.S.) have employed market volatility to produce profits for themselves far more reliably than returns for its investors;
• The companies that manage for-profit mutual funds face a fundamental conflict between producing profits for their owners and generating superior returns for their investors;
• The rating systems used by the industry merely identifies funds that performed well in the past; it provides no help in finding future winners; and
• Investors should avoid highly promoted active funds and instead invest in a well-diversified portfolio of low-cost index funds

The article certainly caused a stir in financial circles in the U.S. and does highlight the folly of trying to chase returns by looking at past performance and who has a high rating. Whilst we agree with three of the four points listed above (and many others in the article itself) we disagree that for profit funds have a conflict of interest as they are rewarded for performance by a management fee that provides a higher profit (in dollar terms) when their assets under management rise through good performance and increased investment.

We do strongly agree with his premise that establishing a well diversified portfolio of passive index funds that meet the risk and return parameters of an investor is the most efficient way of investing and it is one that we use for ourselves and our clients every day. Our Wealth Management Director Daniel Minihan also wrote about the problem with Active investing on his blog earlier this year.

To read the full article click here

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As always, if you would like to discuss any aspect of your investments or your financial strategy please contact one of our advisers.




Contact

Daniel Minihan
T  +61 3 8635 1800
dminihan@moorestephens.com.au

www.moorestephens.com.au