Too many managers spoil the returns: van Eyk
Too many active managers can dilute the benefits of risk through over-diversification, according to van Eyk chief executive Mark Thomas.
Thomas said van Eyk research showed active managers bet mostly on movements in the market, and although investors paid higher fees for managed funds, portfolios often held little stock-specific or active risk.
Combining active managers in a portfolio can water down that small amount of risk even further, according to van Eyk.
From three randomly selected active fund managers in a single portfolio, only two stockholdings varied more than 2 per cent from the benchmark while the rest were less than 2 per cent of their market weight, according to the research.
"You need to dig down deep into the detail when mixing these sorts of investments in order to get the degree of risk you intended," Thomas said.
Thomas said it was the right time for investors to be taking on more risk due to relatively attractive share valuations, and ongoing market volatility driven by the euro crisis and other economic strains that give active managers the opportunity to exploit market mispricing.
Recommended for you
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
Volatility in US markets means currency is becoming a critical decision factor in Australian investors’ ETF selection this year.
Clime Investment Management is overhauling the selection process for its APLs, with managing director Michael Baragwanath describing the threat of a product failure affecting clients as “pure nightmare fuel”.
Global X will expand its ETF range of exchange-traded funds next month with a low-cost Australian equity product as it chases ambitions of becoming a top issuer of ETFs in Australia.
