In focus
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Even the biggest proponents of active investing are willing to throw in
the towel when it comes to the US, writes Adam Lewis
Admitting defeat
W
hen it comes to
investing in the US,
there is an old rule of
thumb that you are
better off investing in passive funds,
because few, if any, active managers
have consistently beaten the index.
For a long period of time, Legg
Mason’s Bill Miller was the exception
to this rule after his Legg Mason
Value Trust outperformed the S&P
500 for 15 consecutive years between
1991 and 2005. As the name of the
fund suggested [it has now changed
its name to Legg Mason ClearBridge
Value], Miller was famed for his value
style of investing, but as the market
cycle turned and conditions began
to favour growth, the portfolio began
to underperform, once again raising
questions over the effectiveness of
active strategies in the US.
Stepping back
Ignoring the active vs passive debate
for one moment, the US market as
FE TRUSTNET
“One of the rules you learn
over your career is that you
don’t try to beat the S&P
500 because you can’t”
a whole has been a great place to
be invested since the end of the
financial crisis, with the S&P 500
up 296.83 per cent over the past 10
years. However, the average IA North
America fund is up only 268.33 per
cent over this time, giving credence
to the idea investors may be better off
going passive.
This outperformance repeats
itself over one, three and five years
as well, and while the IA North
American Smaller Companies sector
has beaten the Russell 2000 over the
past decade, their returns have been
broadly in line with each other over
the three shorter periods. So is there
any point to trying to beat the market
by taking an active stance?
“Having been investing in markets
and researching investments for
nearly 20 years, one of the rules you
learn over your career is that you
don’t try to beat the S&P 500 because
you can’t,” says Ryan Hughes,
head of active portfolios at AJ Bell
sees it as his duty to try and beat the
market in everything he does. He
says he now adopts a more objective
approach and only looks to use
active managers if he is confident
they can outperform the market
after fees.
Investments. “As a proponent of active
“This may sound obvious, but it
investing, this is always a difficult
is only in recent years that we have
concession, but the weight of history is started to see a blend of active and
on this side of the argument.”
passive investments in professional
Admitting to being less naive
investors’ portfolios,” Hughes
than all those years ago, Hughes
no longer
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