In the world of investing, two prominent strategies often find themselves under the spotlight of the financial stage: active and passive investing. Both come with a unique set of features, opportunities, and challenges that every investor should consider.
Active investing takes a hands-on, proactive approach. Professional fund managers use their experience and expertise to navigate through the intricate market landscape, adjusting your portfolio’s direction as market conditions change, with the goal of outperforming the market.
The potential for higher returns is the most attractive feature of active investing. By handpicking investments and timing their buying and selling, active managers attempt to achieve superior returns. For instance, during an economic downturn, a manager might shift towards defensive stocks or increase cash holdings, mitigating potential losses. Conversely, in a bullish market, the manager can opt for high-growth stocks to maximize returns.
However, active investing requires a higher operating cost. The fees associated with active funds, known as expense ratios, are generally higher due to the research, analysis, and frequent trading involved. Investors should carefully consider these costs, as they can erode returns over time.
On the other side of the spectrum, passive investing embodies a different philosophy. Instead of trying to outperform the market, the goal is to match the market’s performance by replicating a specific index. There’s less excitement, but also less uncertainty.
Passive investing is often recognised for its cost-effectiveness. As the portfolio simply mirrors an index, it doesn’t require the same level of management as active funds, resulting in lower fees. Lower costs can translate into higher net returns over time, making passive investing attractive to investors.
Moreover, passive investing typically offers broad market exposure. A single passive fund may contain hundreds or even thousands of different stocks or bonds, providing instant diversification. This wide coverage can reduce the risk associated with the poor performance of a single investment.
A compelling approach that investors may consider is a combination of active and passive strategies, often referred to as the core-satellite approach. The core, typically a large part of the portfolio, provides stability and tracks market returns with minimal costs, reducing the impact of fees on overall returns. This could be made up of index funds or ETFs that replicate major stock or bond indices, thereby offering broad market exposure.
The satellites, though smaller in proportion, allow for higher-risk, higher-return potential. Active funds in this section give the portfolio a chance to outperform the market. They can be strategically positioned to exploit certain sectors, trends, or investment styles, depending on the investor’s beliefs, goals, and risk tolerance. For instance, a satellite might include a fund focusing on emerging technologies or a specific geographical market.
By blending these strategies, investors can achieve a balance between risk management and return potential. This approach can offer the best of both worlds: the low-cost efficiency and broad diversification of passive investing, coupled with the potential outperformance and market-timing ability of active investing. Ultimately, the choice between active and passive investing is a personal one, largely dependent on an investor’s financial goals, risk tolerance, and investment knowledge.
Features of Separately Managed Account
- Choose from four professionally constructed portfolios depending on your needs
- All portfolio management is taken care of for you
- Access Rivkin’s systematic strategies that have proven themselves in live trading in our retail advice product
- Obtain institutional brokerage rates that are not typically available to individual investors
- Execution is performed using algorithms that spread trading out across the day to obtain a fair price
- No upfront cost – management fees are deducted from your account on a monthly basis
For a complete list of risks and costs involved with Apex Separately Managed Accounts please refer to the Product Disclosure Statement. This PDS has been prepared and issued by The Trust Company (RE Services) Limited (ABN 45 003 278 831, AFSL 235150)
Please click here or request the PDS to understand the full risks and cost of the product before making a decision to invest in it.
Important Notice:
Please consider your own financial situation before investing in our products. Rivkin does not provide personal financial advice and does not take anyone’s personal financial situation into account when structuring its model portfolios.
For a complete list of risks and costs involved with Apex Separately Managed Accounts please refer to the Product Disclosure Statement. This PDS has been prepared and issued by The Trust Company (RE Services) Limited (ABN 45 003 278 831, AFSL 235150)
Please click here or request the PDS to understand the full risks and cost of the product before making a decision to invest in it.
Past performance and/or backtesting is not a guarantee of future performance. Investing and trading carry financial risk, when judging performance please consider the different types of investments and levels of risk associated.
To learn more about how we calculate performance click here.
The Trust Company (RE Services) Limited (ABN 45 003 278 831, AFSL 235150) is the responsible entity and the issuer of units in the Apex Separately Managed account. It is general information only and is not intended to provide you with financial advice, and has been prepared without taking into account your objectives, financial situation or needs. You should consider the product disclosure statement, available on www.rivkin.com.au, prior to making any investment decisions. If you require financial advice that takes into account your personal objectives, financial situation or needs, you should consult your licensed or authorised financial adviser. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.
All opinions and estimates constitute judgments of Rivkin and are subject to change without notice. These statements should therefore not be relied upon as an accurate representation or prediction as to any future matters. No company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of any fund or the return of an investor’s capital. Past performance is not indicative of future performance.
Total returns shown for the Apex Separately Managed Account have been calculated using exit prices after taking into account all of Perpetual’s ongoing fees and assuming reinvestment of distributions.
