Evidence strongly suggests there's no persistence to any temporary outperformance active managers deliver
We help our clients either to choose active investment managers or to set up a passive, index-tracking investment strategy – but when appropriate we favour the passive approach. Passive funds choose which shares to buy not on the basis of investment analysis, but simply on the basis of whether they are part of an index, like the FTSE 100 Index in the UK. In essence the idea is to copy the index, and then leave well alone.
A new report from the Financial Conduct Authority, issued in November 2016, clearly illustrates why. The report finds that, “funds which are available to retail investors underperform their benchmarks after costs”, and “many active funds offer similar exposure to passive funds, but some charge significantly more.” In other words, the dream of active investment management is, for many investors, nothing but a mirage. You can find the full report here.
Incidentally, the report also finds that “there is weak price competition in a number of areas of the asset management industry”. This also chimes with our own view: we will recommend investment managers where they are needed, but we negotiate hard on fees!
Past performance is not a guide to future performance. The value of the investment and the income from them can both increase and decrease and you may not get back the full amount originally invested. The value of overseas investments will be influenced by the rate of exchange.