Our “Asset Class Management” approach differs from alternative approaches of “Index Management” or “Active Management”.
THE 3 KEY MANAGEMENT DEFFERENTIATORS
- Active Management involves fund managers/ stockbrokers selecting stocks on the basis of their potential outperformance of the market. In contrast, our Asset Class Management approach is based on the premise that no individual (or team of individuals) has the skill or ability to outperform the market year on year after fees. We can however identify the types of securities (rather than individual securities) that have the potential to outperform (i.e. small and value stocks) and use that knowledge to seek outperformance of the market after fees.
- Our “Asset Class Management” approach involves the purchase of “blocks” of securities in Australia and around the world. Our Australian share portfolio contains approximately 500 companies and the Global portfolio approximately 10,000 companies creating excellent diversification while minimising volatility/risk. It is important to note that we do not recommend indexing, nor do we recommend active management. Active managers can often have portfolios with a small number of stocks (e.g. a portfolio of 20 companies - representing a concentration risk), and they are usually unable to take advantage of all investment opportunities available in the equity markets.
- The buying and selling of stocks within our recommended portfolio occurs as infrequently as possible to ensure that tax is managed appropriately and costs are kept as low as possible. Conversely, active managers trade frequently to chase the next “outperforming stock”. This trading is often completed ignoring the tax implications of these transactions.
Our approach also differs to that of traditional “Index Management”. Indexes cover most of the asset classes such as local and overseas shares, property, fixed interest and cash and can be a valid way of gaining broad exposure to the investment markets.
Index Managers don’t try to outperform the market like Active Managers. They invest by purchasing securities in line with the index weightings to achieve an index return. Although this can be considered as passive, low cost, “buy and hold” investing, turnover can be high (as the managers need to track the index and buy and sell as required). This turnover can result in increased transaction costs and taxes which will impact upon overall return.
In addition, an index is only a commercial benchmark and it is not a means of investing. An indexer forgoes potential returns by not investing in companies that are not part of the index. This is especially the case for small companies that often offer the greatest value.