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Behind The Headlines: Active vs. passive management with Daniel Godfrey

Following the FCA's interim report, what are the new themes and escalations in the active vs. passive management debate?

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Jan 03, 2017

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Go to the profile of Philip Milton Co Plc
Philip Milton Co Plc about 3 years ago


An interesting study has revealed that good old ‘gut feeling’ will beat pure mathematical algorithms at the end of the day.

Cambridge University proved that experience backed by qualification enabled good active managers to be able to make better decisions than simply the case of ‘having it because it is there’.

I’d like to add another reason why an active management arrangement is better (even if that includes the capacity to buy index trackers from time to time, as well as which trackers and in which proportions, all ‘active’ decisions). The reason is quite simple – and that is that your active manager has the ability to act in the face of adversity if he believes it is the right thing to do. A passive manager doesn’t. It is then a case too of considering that the extra cost is a form of ‘insurance’ if you like. Despite it not being a perfect science, the capability of being able to act in clients’ best interests (and often against the consensus at the time for best value) is worth paying a retainer for just that moment, an opportunity which may only come once every so often. Was that for us the opportunity that the start of 2016 gave when we bought more the cheaper the markets became, or the pre-planning to hedge ourselves for the Referendum vote, or our actions we took afterwards? Possibly it was our buying of more and more metals, miners and oils as the prices of these so important sectors plummeted and our avoidance of other over-hyped areas? So do think very carefully when the headline ‘cost’ is all that concerns you – remember, it is a fool who knows the price of everything and the value of nothing…

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