Investment Wisdom by Brett Kelly

Author:Brett Kelly
Language: eng
Format: epub
Tags: Entrepreneurship–Australia
ISBN: 9780980776591
Publisher: Clown Publishing
Published: 2020-02-27T16:00:00+00:00

BK: What is the future of index and active management?

PM: It’s an interesting one. For the average investor, index funds may be an easy way to do it. But we can do better. The Global Companies Fund’s return since inception is 464 per cent versus the index’s 170 per cent [to end April, 2019], so we’ve been able to add real value over the longer term. My natural instincts are always to do better than the average. Passive dominates now, but it is no longer an easy solution. It’s become so big, and whenever that happens, it’s no longer going to give you an acceptable rate of return. What that means is if passive returns are going to be sub-normal, you need active managers. We think in the next few years you are going to get average returns of between 0 per cent and 2 per cent on cash, 0 per cent to 3 per cent on bonds, and 3 per cent to 5 per cent on equities. You could do your typical blended asset allocation, but you’re going to get 2 to 3 per cent returns at best. Take away the fees and you’re not going to make any money. You need active now.

BK: That’s pre-inflation returns.

PM: Yes, and it’s going to be tough to earn a return right at the point when everyone’s piling into bonds and passive equities. You need to find good, active investors. People underestimate just how pervasive it is because you not only have passive exchange traded funds, but the vast majority of institutional active managers have weightings that are very close to the index. That’s why the next three years are going to be really interesting because you’ve had this huge 30-year trend in interest rates turning around and a huge swerve to passive. When interest rates go back up, you have less liquidity, which is going to create a wider dispersion in long-term opportunities. That’s great for active guys, provided you’ve got the right time horizon. I would now argue that passive’s no longer going to do the job for the average investor.

BK: What people dressed up as money management, actually isn’t.

PM: The industry’s shot itself in the foot; they didn’t have the character to say no.

BK: It was pretty easy for a long time. It was hard to be an index fund investor 10 years ago, but it isn’t now and it will get easier. So the herd in the middle...

PM: It’s gone. You’ve got to be genuinely active or you may as well be passive.

BK: I’ve noticed across industries that essentially, the middle is dead.

PM: You’ve got to communicate what you believe in and follow up with actions that are consistent with your beliefs.

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