Blue Chip Issue 90

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BLUE CHIP INVESTMENT | ETFs The arithmetic is not in active funds’ favour Morningstar reported that a third of European active equity managers outperformed the average passive fund in the one year to the end of June 2023. However, in the last decade, only 17.1% of active equity and 23.1% of bond managers outperformed their passive peers, highlighting the compelling value proposition of indexbased funds. Global fund flows show more investors than ever are choosing indexation strategies. Fund flows tell the story Morningstar makes it clear that while active managers may have had success recently in the volatile global market, the long-term picture shows that index funds are more consistent performers. Its study of almost 26 000 active and index funds indicated that funds’ survival is tied to their success and, typically, index funds outlast their active counterparts. Here is further insight into the explosive growth of indexation or rules-based strategies: • Over the last 14 years, index-based funds absorbed 65% of net global flows [1] . • According to Morningstar, exchange-traded funds (ETFs) in South Africa now account for 6.3% of market share, and unit trusts are at 7.5%. Among high equity balanced funds, the assets under management (AUM) of rules-based or indexed balanced funds sit at 8.2% but they have attracted an outsized 57.1% of net flows over the last 12-months within the ASISA South African Multi-Asset High Equity category [2] . • Satrix ETF AUM across linked-investment service provider (LISP) platforms have grown more than six-fold in the past three years [3] . The arithmetic of active management The Arithmetic of Active Management paper by Nobel Prize winner William F Sharpe shows that for every dollar that outperforms the market benchmark, another dollar will underperform; it’s a zero-sum game among all market participants, before costs. In practice, however, all investing and investment funds incur costs (from trading and management), which means that the average fund underperforms the market benchmark, leaving a minority of funds able to outperform over a given period. The crux Active managers’ value should be highest when opportunities to differentiate are the strongest. Historically, however, this has not been the case. For a South African multi-asset manager, the period after 2020 coincided with a time when getting active calls right was the most profitable in our history. Despite this, according to Bloomberg and Satrix, the weighted average 12-month rolling returns of rules-based balanced funds have outperformed the median rolling returns of active managers 73% of the time, since 2020. This is also not a new phenomenon: over the 10 years since the Satrix Balanced Index Fund’s inception, it has outperformed its active peers over <strong>90</strong>% of the time on a rolling three-year basis. 48 www.bluechipdigital.co.za
INVESTMENT | ETFs BLUE CHIP Kingsley Williams, Chief Investment Officer, Satrix* Active management has an important price discovery role to play. This suggests that either active managers are not capitalising on available opportunities to differentiate themselves using active tactical decisions to compensate for higher fees, or that making the correct tactical calls is exceedingly hard to do consistently. The real reason is probably a combination of both. Man and machine Active management has a very important price discovery role to play, and this is something that vanilla index solutions are ill-equipped to do. Active managers should be able to identify opportunities that may not be obvious from quantitative measures alone. This means that indexation can never fully replace active management, nor should it aspire to do so. Now, in an age of AI, prevailing prices will increasingly accurately reflect available information, eroding easy opportunities for active differentiation. Active versus passive is a dead concept. A blend of man and machine, or active and indexation, should be the best strategy going forward. The numbers are too clear to ignore. *Satrix is a division of Sanlam Investment Management. [1] Nedgroup Investments Core Chartbook 2023 | Investment Company Institute [2] Morningstar & Satrix, 31 December 2023 [3] Satrix, 31 December 2023 CIS disclosure Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision. Satrix Managers is a registered Manager in terms of the Collective Investment Schemes Control Act, 2002. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information. Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs, the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index-tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments/units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document. www.bluechipdigital.co.za 49
Page 1: BLUE CHIP 0.5 CONTINUOUS PROFESSION
Page 5 and 6: Professional Financial Planning and
Page 7 and 8: Indexation: Anything but Passive. I
Page 10 and 11: CONTENTS ISSUE 90 FEB/MAR/APR 2024
Page 12 and 13: BLUE CHIP FPI UPDATES | CEO message
Page 14 and 15: BLUE CHIP On the money Making waves
Page 16 and 17: BLUE CHIP On the money Making waves
Page 18 and 19: BLUE CHIP COLUMN How to get the yea
Page 20: BLUE CHIP COLUMN Social media in fi
Page 23 and 24: INVESTMENT | Leadership BLUE CHIP C
Page 25 and 26: INVESTMENT | Leadership BLUE CHIP F
Page 27 and 28: INVESTMENT | Economy BLUE CHIP Top
Page 29 and 30: INVESTMENT | Innovation BLUE CHIP d
Page 31 and 32: Annual Refresher 2024 Cape Town 27
Page 33 and 34: FPI | Financial Planner of the Year
Page 35 and 36: Young Financial Planners Organisati
Page 37 and 38: FPI UPDATES | Awards BLUE CHIP In a
Page 39 and 40: FPI UPDATES | Awards BLUE CHIP The
Page 41 and 42: FINANCIAL PLANNING | Retirement BLU
Page 43 and 44: FINANCIAL PLANNING | Retirement BLU
Page 45 and 46: INVESTMENT | Exchange-traded produc
Page 47 and 48: STRAPLINE BLUE CHIP www.bluechipdig
Page 49: Financial Planning Institute of Sou
Page 53 and 54: PRACTICE MANAGEMENT | Technology BL
Page 55 and 56: PRACTICE MANAGEMENT | Technology Be
Page 57 and 58: INVESTMENT | Economy BLUE CHIP The
Page 59 and 60: INVESTMENT | Hedge funds BLUE CHIP
Page 63 and 64: USE AI FOR EFFORTLESS AGENDAS & MIN
Page 69 and 70: CLIENT ENGAGEMENT | Coaching BLUE C
Page 71 and 72: CLIENT ENGAGEMENT | Behavioural fin
Page 73 and 74: PRIVATE CLIENT HOLDINGS IS AN AUTHO
Page 75 and 76: FINANCIAL PLANNING | Legislation BL
Page 77 and 78: DEVELOPMENT | Internships BLUE CHIP
Page 79 and 80: FINANCIAL PLANNING | Legislation BL
Page 81 and 82: FPI | Certification BLUE CHIP Next
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Blue Chip Issue 90

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