Debate continues on active vs passive fund management

(iStock)
(iStock)

Cape Town - One of the most contentious topics in investment management, the active versus passive argument, gained momentum at a recent live debate between two local investment management experts.

In the passive corner was CEO of 10X Investments and long-time champion of index tracking, Steven Nathan, who faced off against the active investment veteran, Neville Chester, a senior fund manager at Coronation.

“As the opinions for either side grow, it’s becoming near impossible for an impartial investor to know which strategy is truly in their best interest for securing a financially comfortable retirement,” said Nathan. “We wanted to provide a measure of clarity for people.”

While on a global level, actively managed investment funds are losing popularity, with millions of assets under management flowing into index-tracking funds more than 90% of South Africa’s unit trusts remain actively managed.

The recent debate saw Nathan and Chester unpack various arguments with particular relevance to the South African retirement savings environment. The debate brought to light merits and drawbacks of each investment style and the audience definitely left feeling a lot better informed.  

Nathan’s argument was simple – South African active fund managers "charge exorbitant fees to gamble” with people’s life savings". He gave an example that compared an investor’s chance of selecting a successful active fund manager with a Blackjack player who already has two Kings in his hand, drawing an Ace. Mathematically, Nathan said, the Blackjack player is twice as likely to draw an Ace as the investor is to choose the winning fund manager.

Nathan added: “Investing for a secure retirement should not be a gamble.”

In rebuttal, Chester argued that success was possible with active management, and pointed to the consistent outperformance of Coronation’s longest-running equity fund.

“Active managers can and do outperform the market, and while passive investing has played a very important role in exposing active managers who are not performing, this does not detract from those who are able to achieve alpha,” Chester added.

A second debate is planned for late October or early November in Johannesburg.

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.

Read Fin24's top stories trending on Twitter:

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
ZAR/USD
16.19
(-0.10)
ZAR/GBP
21.11
(-0.12)
ZAR/EUR
19.19
(-0.12)
ZAR/AUD
11.55
(-0.13)
ZAR/JPY
0.15
(-0.14)
Gold
1901.55
(+0.01)
Silver
24.57
(+0.10)
Platinum
902.03
(+0.40)
Brent Crude
41.85
(-1.66)
Palladium
2378.04
(+0.61)
All Share
55339.58
(+0.99)
Top 40
50692.28
(+0.83)
Financial 15
10790.70
(+3.99)
Industrial 25
74905.70
(+1.05)
Resource 10
52561.57
(-0.49)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, and I've gotten it.
24% - 68 votes
No, I did not.
52% - 148 votes
My landlord refused
24% - 70 votes
Vote