CONVERSATIONS WITH YOUR CLIENTS
SHOULD I CONSIDER ACTIVE AND PASSIVE INVESTMENTS
IN MY PORTFOLIO?
Blending active and passive funds
A core and satellite investment approach gives investors the flexibility to blend different styles of investing and different market
exposures to best suit their risk profile. In this conversation starter we discuss how investors can combine passive investments
with active investments to form the diversified and dynamic portfolios we believe many investors need today.
Using this chart with clients
Use the front side of the conversation starter to illustrate how active and index funds can be combined to create more
efficient portfolios.
Passive
funds
(ETFs)
Active
funds
Active
funds
Passive
funds
(ETFs)
BENEFITS OF ACTIVE AND PASSIVE FUNDS
Active
Potential to outperform the underlying market through research-driven
Passive
Low-cost exposure to a broad basket of securities in order to ‘track’
the underlying market
stock selection
Ability to reduce exposure to sectors that are likely to underperform
Can help to limit losses in a declining market
Can provide specialist coverage and knowledge of markets
In order to diversify potential sources of
risk and improve the cost efficiency of a
portfolio, owning a broad array of
investments, including both active and
passive, can help provide diversification
and access to markets across the globe.
1
2
Actively managed funds allow
investors to tailor portfolios around
investment objectives and appetite for
risk. They have the potential to boost
returns by outperforming a particular
benchmark, but there are increased
risks and no guarantees that the
performance of the benchmark will be
matched or even exceeded.
Passive funds such as ETFs provide a
low-cost and targeted way to track
index returns and gain convenient
access to the full range of asset
classes and global markets.
CONCLUSION
There is a place for both active and passive
investments in a well-diversified portfolio.
Finding the right balance is more important
than ever in today’s world. Work with your
clients to determine the appropriate
balance for their portfolio.
TIME TO TAKE ACTION
u Analyse the current balance of your
clients' portfolios.
u Discuss with clients how to determine
the appropriate balance of active and
passive investment strategies for their
portfolio.
Broad-based exposure giving diversification can help to limit losses in a declining market
Emphasis on diversification rather than finding an ‘active’ manager who
aims to consistently outperform
Large choice of specific market exposures ranging from broad to specialist
IMPORTANT POINTS FOR YOU TO HIGHLIGHT TO YOUR CLIENTS
u There is a place for both active and passive investments in a well-diversified
portfolio. Finding the right balance is more important than ever in today’s world.
Work with your clients to determine the appropriate balance for their portfolio.
u Active funds and index tracking funds can usually be accessed at a single valuation
point each business day at net asset value adjusted for applicable dealing charges
and fees.
u Active funds may not meet their performance goals and may underperform due to
stock selection.
u Always remember that past performance is not a guide to future performance and
should not be the sole factor of consideration when selecting an asset class.
u All financial investments involve an element of risk. Therefore, the value of your
investment and the income from it will vary and the initial investment amount
cannot be guaranteed.
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