12th July 2012
I don’t agree. While I think there is a place for passive funds, I’m a full advocate of active fund management. Particularly in low growth environments.
In his Treasury Select Committee speech recently, Mervyn King, the governor of the Bank of England, said he believed that Britain is not even half way through the financial crisis that began in 2007. We’ve spoken to fund managers who believe it could run for another 15 years just like in Japan, which has only just paid off the debts from its own crisis in the 1990s.
Governments today have a choice. Either pay back their debts over a long period of time and put up with long periods of sub par growth, or inflate their way out of debt by increasing the money supply. In the UK, the focus has been on debt reduction, falling back on quantitative easing now and again to give growth a much needed boost.
After a year and a half of barely any growth, coupled with the slowing of our main export markets and shattered confidence over the eurozone issues, this happened again just last week when the Bank of England extended its quantitative easing programme by a further £50billion.
The problem for investors is that no one knows what the impact is going to be of all this extra money in the system. We may not know for years. It could be very high inflation, it could be deflation. It could be both in pretty quick succession. And growth is unlikely to get back to decent levels for some time too.
But investors just have to get on with it. They shouldn’t be frightened by the market falls we’ve seen over the last five years because there are companies out there that are doing well. But what they don’t need in this environment, in my opinion, is a passive fund. Right now, you need a decent active manager who can find companies which will do OK, no matter what the outcome of all this government intervention is, no matter how flat the economy might be.
And looking back over the last five years, the statistics are starting once again to favour those active managers. Over the last five discrete years to 26th June 2012, the average fund in the UK All Companies Sector has beaten the average index fund in every period. Cumulatively, the average active fund has achieved double the returns. And that’s just the average. The really good active managers have more than proved their worth.
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