{"id":25538,"date":"2025-03-25T07:53:14","date_gmt":"2025-03-25T08:53:14","guid":{"rendered":"https:\/\/www.premium-partners.net\/?p=25538"},"modified":"2025-03-28T13:11:12","modified_gmt":"2025-03-28T13:11:12","slug":"nows-the-time-for-active-investing-to-prove-its-value","status":"publish","type":"post","link":"https:\/\/www.premium-partners.net\/fr\/builder\/nows-the-time-for-active-investing-to-prove-its-value\/","title":{"rendered":"Now\u2019s the time for active investing to prove its value"},"content":{"rendered":"

This post<\/a> was originally published on this site<\/a><\/p>

<\/p>\n

By Richard Oldfield<\/em><\/p>\n

To start with, my cards are on the table: I run an investment business where we charge fees for the decisions we take with clients\u2019 money. <\/span><\/p>\n

So you will not be surprised that I am a fervent believer in the value of active investment management.<\/span><\/p>\n

I also see value in \u201cpassive\u201d or tracker investments, which can offer low-cost, broad portfolios that passively mirror the make-up of market indices such as the MSCI World or the S&P500. There is a place for these. In 2014 Warren Buffett famously advised that his wife\u2019s money should go into a tracker fund, and I\u2019d agree: everyone\u2019s pension or ISA should probably contain some passive holdings as a source of cost-effective diversification.<\/span><\/p>\n

I do not agree, however, with those who claim that passive investing \u2013 which has grown hugely in recent years \u2013 will ever remove the need for active investment oversight. Active investing, where decisions are underpinned by fundamental research, is key to effective \u201cprice discovery\u201d \u2013 the process through which markets attribute value to assets.<\/span><\/p>\n

All investment should rest on deliberate decisions, including consideration of risk. <\/span><\/p>\n

Right now, we are at a pivotal point where the trade-offs between cost, risks and returns need to be reconsidered. The composition of today\u2019s markets, and the forces that are shaping companies\u2019 future profitability, mean the dangers posed by passive portfolios \u2013 specifically, investors drifting into unintentional risk-taking \u2013 have rarely been greater.<\/span><\/p>\n

Unprecedented market concentration<\/b><\/h3>\n

Major indices are increasingly dominated by fewer stocks, from fewer countries, in fewer industries.<\/span><\/p>\n

The US stock market currently makes up 74% of the MSCI World index, the highest degree of index dominance for at least 55 years. <\/span><\/p>\n

This concentration is echoed lower down, with the ten largest US stocks making up 37% of the US market. Even during the late 1990\u2019s tech bubble the top ten barely exceeded 25% of the S&P, so today\u2019s level of US concentration lies outside investors\u2019 experience. And of course, today\u2019s largest holdings all represent the same, one-way bet \u2013 on US technology.<\/span><\/p>\n

This phenomenon is not only about the US and tech. It\u2019s happening in other regions, industries and indices too. It poses risks for all investors, and it requires an active approach to manage it. Markets move fast: to maintain a deliberate, planned exposure you need to be agile.<\/span><\/p>\n

Price and value are not the same: if you choose a global tracker fund because you\u2019ve heard it\u2019s the cheapest way to invest, you also need to know \u2013 and sleep happily each night knowing \u2013 that a lot of your money is being invested in a handful of companies, all engaged in related industries.<\/span><\/p>\n

Disruption from many quarters<\/b><\/h3>\n

Uncertainty is a constant in my world. I never come to work thinking uncertainty has gone away.<\/span><\/p>\n

But in the years ahead we\u2019re facing seismic shifts at both a market and macro-economic level. Increasing globalisation was the theme for most of my life to date, but now it\u2019s stalling as protectionism and populism cause trade and political ties to fragment. Again, bond yields fell for the best part of four decades, but now they are rising again.<\/span><\/p>\n

The market is changing in the way it responds to signals. Trump\u2019s pronouncements, for example, whether they\u2019re executive orders or tweets, are not necessarily moving stock prices: the market is discrediting what in other periods would have been clear signals.<\/span><\/p>\n

In this environment investors need to be agile and armed with an understanding of how real policy outcomes will impact corporate valuations. That rests upon analyses of businesses\u2019 operations, and only active managers undertake that work and can capitalise on it.<\/span><\/p>\n

Investors need to look ahead<\/b><\/h3>\n

Passive investing is necessarily backward-looking. <\/span><\/p>\n

The stock position in a passive portfolio is warranted only by what has gone before. Active investing can consider predictable future risks over the medium and longer-term, such as climate.<\/span><\/p>\n

We devote significant resources to understanding climate risks and opportunities because we need deep knowledge to guide the investment decisions that get the best returns for clients. <\/span><\/p>\n

The impact of AI, as it cascades out across industries and societies, presents similar scenarios.<\/span><\/p>\n

There is another way in which active investors can drive returns: by encouraging the companies they own to adapt to trends which can undermine or strengthen their businesses. <\/span><\/p>\n

The knowledge we build of the companies we invest in gives us perspectives and relationships that are critical to this engagement. Again, it\u2019s costly, but it\u2019s aimed at unlocking value for investors and is something passive funds are not equipped to do. <\/span><\/p>\n

Oldfield is Group CEO of Schroders. <\/span><\/i><\/p>\n

PERSONAL FINANCE<\/strong><\/p>","protected":false},"excerpt":{"rendered":"

By Richard OldfieldTo start with, my cards are on the table: I run an investment business where we charge fees for the decisions we take with clients\u2019 money. So you will not be surprised that I am a fervent believer in the value of active investment management.I also see value in \u201cpassive\u201d or tracker investments, which can offer low-cost, broad portfolios that passively mirror the make-up of market indices such as the MSCI World or the S&P500. There is a place for these. In 2014 Warren Buffett famously advised that his wife\u2019s money should go into a tracker fund, and I\u2019d agree: everyone\u2019s pension or ISA should probably contain some passive holdings as a source of cost-effective diversification.I do not agree, however, with those who claim that passive investing \u2013 which has grown hugely in recent years \u2013 will ever remove the need for active investment oversight. Active investing, where decisions are underpinned by fundamental research, is key to effective \u201cprice discovery\u201d \u2013 the process through which markets attribute value to assets.All investment should rest on deliberate decisions, including consideration of risk. Right now, we are at a pivotal point where the trade-offs between cost, risks and returns need to be reconsidered. The composition of today\u2019s markets, and the forces that are shaping companies\u2019 future profitability, mean the dangers posed by passive portfolios \u2013 specifically, investors drifting into unintentional risk-taking \u2013 have rarely been greater.Unprecedented market concentrationMajor indices are increasingly dominated by fewer stocks, from fewer countries, in fewer industries.The US stock market currently makes up 74% of the MSCI World index, the highest degree of index dominance for at least 55 years. This concentration is echoed lower down, with the ten largest US stocks making up 37% of the US market. Even during the late 1990\u2019s tech bubble the top ten barely exceeded 25% of the S&P, so today\u2019s level of US concentration lies outside investors\u2019 experience. And of course, today\u2019s largest holdings all represent the same, one-way bet \u2013 on US technology.This phenomenon is not only about the US and tech. It\u2019s happening in other regions, industries and indices too. It poses risks for all investors, and it requires an active approach to manage it. Markets move fast: to maintain a deliberate, planned exposure you need to be agile.Price and value are not the same: if you choose a global tracker fund because you\u2019ve heard it\u2019s the cheapest way to invest, you also need to know \u2013 and sleep happily each night knowing \u2013 that a lot of your money is being invested in a handful of companies, all engaged in related industries.Disruption from many quartersUncertainty is a constant in my world. I never come to work thinking uncertainty has gone away.But in the years ahead we\u2019re facing seismic shifts at both a market and macro-economic level. Increasing globalisation was the theme for most of my life to date, but now it\u2019s stalling as protectionism and populism cause trade and political ties to fragment. Again, bond yields fell for the best part of four decades, but now they are rising again.The market is changing in the way it responds to signals. Trump\u2019s pronouncements, for example, whether they\u2019re executive orders or tweets, are not necessarily moving stock prices: the market is discrediting what in other periods would have been clear signals.In this environment investors need to be agile and armed with an understanding of how real policy outcomes will impact corporate valuations. That rests upon analyses of businesses\u2019 operations, and only active managers undertake that work and can capitalise on it.Investors need to look aheadPassive investing is necessarily backward-looking. The stock position in a passive portfolio is warranted only by what has gone before. Active investing can consider predictable future risks over the medium and longer-term, such as climate.We devote significant resources to understanding climate risks and opportunities because we need deep knowledge to guide the investment decisions that get the best returns for clients. The impact of AI, as it cascades out across industries and societies, presents similar scenarios.There is another way in which active investors can drive returns: by encouraging the companies they own to adapt to trends which can undermine or strengthen their businesses. The knowledge we build of the companies we invest in gives us perspectives and relationships that are critical to this engagement. Again, it\u2019s costly, but it\u2019s aimed at unlocking value for investors and is something passive funds are not equipped to do.\u00a0Oldfield is Group CEO of Schroders. PERSONAL FINANCE<\/p>","protected":false},"author":1,"featured_media":12912,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-25538","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-builder"],"_links":{"self":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts\/25538","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/comments?post=25538"}],"version-history":[{"count":2,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts\/25538\/revisions"}],"predecessor-version":[{"id":25540,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/posts\/25538\/revisions\/25540"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/media\/12912"}],"wp:attachment":[{"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/media?parent=25538"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/categories?post=25538"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.premium-partners.net\/fr\/wp-json\/wp\/v2\/tags?post=25538"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}