The new, new school of investing
It remains a mystery to me that actively-managed funds continue to dominate our industry despite the overwhelming evidence that they fail to deliver for investors. Why then is this the case?
Given that they are characterised by high costs and unreliability most could question how active management, as a long-term investment, survives. The fact that 90% of the UK’s investing public invests this way is simply mind-boggling.
The truth might be lie in the enormous marketing budget that the “old school” establishment has meaning that it dominates the financial press and captures a huge amount of “uninformed” but well intentioned money.
There is however a massive weight of evidence to suggest that investors would be much better off adopting a passive approach.
At Brett Investment we ignore these expensive, high-charging active funds and instead invest in low-cost index funds commonly known as ‘passives’. Countless studies exist to say that low-cost funds deliver the best returns over time
This approach in its simplest form would be to invest in say a FTSE All Share Tracker index fund. This allows you to buy almost 700 different listed UK shares at a very low cost. This is what I’d call a “new school” approach.
Whilst better than most active strategies at Brett Investment we believe that a more sophisticated, and better, approach exists…one that makes the link between science and investing.
The evidence which supports this approach is what drives our investment philosophy – the evidence that, over time, investing in ‘small’ and ‘value’ company shares will give higher expected returns than the broad market provides.
Active management, whilst popular, is both expensive and unreliable. Rather than pursuing the fruitless task of trying to pick the next winner we instead spend our time finding the most efficient low-cost funds with tilts towards ‘small’ and ‘value’ company shares. Put simply a well-structured, indexed portfolio tilted to small cap and value company shares can deliver higher expected returns much more reliably than can active management.
You could call this approach ‘new, new school’ or indeed ‘passive plus’ investing but I simply prefer to think of it as straightforward common sense.