Mark Slobom, IFA Harpenden – A review of active and passive equity investment

Friday 24 March, 2017

Mark Slobom, independent financial adviser (IFA) Harpenden – A review of active and passive equity investment

Mark Slobom, independent financial adviser Harpenden and member of the Harpenden Financial Planning team said: ‘When we are conducing financial planning for clients who may not have invested in the equity market before it is really important that we spend time explaining how investment works. 

In terms of equity investment our independent financial advisers take time to explain the difference between active and passive investment.  We ask clients to complete our – Assessing your attitude to risk document so we understand a client’s attitude to risk, reward and volatility before we recommend an appropriate investment strategy. 

Everyone’s financial circumstances and risk profile are different so all our clients have different views on active or passive investing. To learn more I recommend reading Deb Nolan, independent financial adviser Leeds / Bradford and member of the Leeds / Bradford financial planning team’s article – Financial Advisers have a responsibility to educate before offering financial advice, and Why Financial Advisers should explain the risks and rewards of investing.’

What is active investing?

Active investment funds are managed by fund managers and research teams.  The investment team research the relevant markets, stocks, sectors and decide which stocks to hold in the investment portfolios.  The aim with active fund management is to deliver a superior return to the overall market or benchmark.  If you invest in an actively managed fund you have the opportunity to make higher investment returns than the fund benchmark, although the investment fees for active investment management are considerably higher.  By investing in active funds you accept the risk that you may underperform the market or benchmark.

What is passive investing?

A passive investment replicates the market constituents so the investment return reflects the performance of the market or benchmark that is being tracked.  Passive investment funds are considerably cheaper because there is no active investment as computers can be used to generate stock weightings.  However, there is no opportunity for the fund to outperform the market or benchmark. In some situations you may also experience more volatility of returns in a passive fund because these investments must replicate sectors that subsequently underperform the market or benchmark.  For example the growth in the technology sector between1997-1999 and subsequent ‘tech bubble.’  

Mark Slobom, independent financial adviser Harpenden said:

 ‘At Lonsdale Services we always offer clients a choice of investment options dependent on their risk profile and how much they want to spend on investment management.  Our investment policy committee follows a robust investment process to ensure that we apply stringent criteria to deliver client value, and we screen thousands of financial products to identify the ones that meet these criteria. This enables us to offer high quality, proven investments to meet all your financial requirements, whether it is active or passive investment management that is required.   Sometimes we will recommend using both active and passive approaches within the same portfolio.  If our investment research suggests an active investment approach can deliver added value we recommend active investment, and if not then we recommend passive products.  If we recommend mutual fund groups we ensure these companies have sizeable funds under management and use an acceptable charging structure for their investment products. We prefer investment houses with a strong team bias, where strategists and analysts support the investment management teams.  We use both qualitative and quantitative methods to research investment funds for our panel.  To learn more about our investment process read my interview - Our Investment Policy Committee’

Please note: Your investments may fall as well as rise, and you may not get back what you put in. 

Latest News Next Article Previous Article