Active Management, the Pros and Cons

We are rather skeptical on the benefits of active portfolio management. However, some asset managers do demonstrably consistently beat the benchmarks. Most however, do not.

There are some exceptional asset managers with exceptional long term track records. They are however, the exception. There are 2,600 Independent Asset Managers active in Switzerland. Some promote passive strategies, some promote active strategies, some promote both. The choice, as always, lies with the investor.

Trading can be hazardous to your Wealth

The graph we like is this study from the Journal of Finance in 1997. To bear in mind that the years 1991 to 1997 were some of the best on record, so positive returns over this period is to be expected. The thing to look at is the negative correlation between account turnover and return.

The study only considered a maximum 20% turnover p.a. It is not unusual for an Asset Manager following an active management strategy to be turning over 30 to 40% or more.