Hundreds or even thousands of ”active” fund managers are competing to add alpha to beat benchmark indexes, be it in stocks, bonds or alternatives.
The market is so efficient, historical performance is no guide to the future. It’s nearly impossible to find a reliable method to pick advisers who deliver the best industry returns year in and out. There are also costs, from visible ones such as management fees and custody and administration expenses to “below water” costs such as trading commissions (due to higher turnover), bid/ask spread (price to buy, another to sell) and market impact costs (larger buy/sell orders affecting price).
Given this, is there a point in investing in active funds? What about just diversifing your assets through passive indexes?
This is the philosophy behind London-based fund Frontier Capital Management, run by Mike Azlen.
Azlen told a briefing in his Berkeley Square office this week how a passive approach beats active investment most of the time.