Why managing your investments is crucial
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Having your investments actively managed can pay dividends, says financial expert Pete Sharkey
My youngest niece, the baby of the family, was 18 last month. Having a drink with my brother-in-law at the party thrown in her honour, he asked 'how did nearly two decades whiz by in the blink of an eye?' I didn't have a well-practiced, suitably sage response prepared, so a disbelieving shake of the head had to suffice.
It's quite staggering to think of how the world has changed in less than two decades. My niece doesn't know about pre-internet, pre-Google, pre-Amazon days and she's never seen a mobile phone the size of a house brick used solely for phone calls.
She wasn't even born when the new millennium arrived: you remember, midnight on 31 December 1999 when the Millennium Bug was supposed to trigger a worldwide computer meltdown, cause planes to fall out of the sky, wholesale gloom and doom and destroy civilisation as we know it? Sound familiar?
From an investment perspective, the period since 31 December 1999 has been one of remarkable growth, an era notable for unprecedented advances in healthcare and technology which continue to determine how humans interact with each other. In addition, with driverless cars and flying taxis, you could argue we're on the cusp of entering another roaring 20's era.
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Considering the sheer volume of spectacular development that has taken place since the turn of the century, had you invested your capital equally across the UK's top 100 companies over the last 18 years of global growth, you could surely have expected equally stupendous returns.
Not quite. Consider this: on 30 December 1999 the FTSE 100 index of the UK's 100 largest companies closed at 6,930 points. On 30 December 2018, the same FTSE 100 index closed at 6,733 points.
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It doesn't take a genius to realise that over the last 18 years, UK large-cap markets have gone nowhere. In fact, they've fallen by 2.9pc. Hardly a winning endorsement of generating long term returns from the UK's 100 largest and most stable companies.
It was James Penny, senior investment manager at TAM Asset Management, who brought this unwelcome fact to my attention. He believes it's investors who are enthusiastic believers in the power of 'passive' investments, to the exclusion of all else, who need to take heed.
'Investing in a readily available FTSE 100 ETF [Exchange-traded fund], whilst cheap, would have generated losses of more than 2.9pc over 18 years, after fees. As anyone in asset management will tell you, making a negative return for clients over 18 years is highly disappointing,' says Mr Penny.
He contrasts the FTSE100s disappointing performance with that of an active manager also investing in the UK's top 100 companies over the same 18 year period.
'The two performances are not even close,' he observes. 'According to our research of UK large-cap funds running from 1999, active managers would have generated returns of between 170pc – 200pc. This is quite astounding considering the collective performance of the FTSE 100 index is actually negative.
'This return could be further improved if we include UK multi-cap managers able to invest across large, mid and small sized companies. In this case, returns of up to 900pc have been achieved.'
These figures illustrate a stark reality for investors. Over 18 years, investing with an active manager who invests in the right shares at the right time and, by undertaking detailed research, avoids shares likely to plummet in value, could generate an investor significantly greater returns than those enjoyed by a passive investor.
'As someone with a long-term pension pot invested in stock markets, paying an additional half a percentage point for an active manager to help deliver this kind of outperformance over 18 years seems like a very reasonable trade off,' adds Mr Penny.
Investing with an active investment management firm capable of creating client portfolios consisting of a proven selection of active (and successful) fund managers from across the globe can undoubtedly pay dividends. It's a simple strategy which not only gives investors access to managers delivering impressive returns, it also ensures they're invested with managers who seek to protect their capital when times get tough.
If 2018's stock markets taught investors anything, it's that investments can go down as well as up and choosing an active – and still cost effective – investment manager during uncertain times could make a significant difference.
TAM Asset Management Ltd offer investors the opportunity to invest in a variety of fully-manged, mainstream and ethical ISA portfolios based upon their attitude towards risk.
For further details, please visit the MoneyMapp website.
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For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.