Richard Cayne on Active or Passively managed Funds ? Does it really need to be either or could it be Both?

 

Active or Passive? Does it really need to be either or could it be Both?

With all the economic turmoil, issues and virus concerns seemingly everywhere you turn, in markets all over the world, many people are trusting managers of active investment products. Why pay higher fees for players in a rigged, or at the very least an incredibly tumultuous, game? Passive investment managers charge lower fees whose decisions are dictated by a pre-determined structure and strategy.

“This is a very black and white point of view that will do your investments more harm than good,” says Richard Cayne of Meyer International. Richard advises his clients to carefully consider both strategies – they each have their pros and cons, and they both can be part of a profitable financial plan.

What is active investing?

An active investment manager is actively engaged in deciding what and when to buy and sell. This sounds simple, but it is actually a very complex, involved commitment. The manager must research extensively and be able to quickly absorb and analyse market data to make decisions that will beat the market. Considering all the variables that affect a financial instrument, this is a profound undertaking. This is why active investment managers charge higher fees. But how well do they perform? In recent years, not so well. According to Morningstar’s Active/Passive barometer, active funds have been underperforming passive funds, especially over longer time periods.

So why bother with them? Under certain conditions, active investing can pay off very well. Before you hand your money decisions, do some research. Is the manager an expert in the fund sector or emphasis? If the strategy is too general, this usually does not bode well for active management. Also, success with this strategy often relies on being first in to profit most. In more developed markets, this is difficult since there is literally a wealth of information available. Emerging markets and sectors will often require specialised access and insights that can help active investing thrive. Also, active investing can respond immediately to sudden changes in the financial world, like the recent Brexit vote.

What about passive investing?

While active investing relies on an individual analysis of a specific dataset, passive investing looks to the overall performance of a certain group of equities or debts. Passive investing focusses on a certain index like the S&P500 or the DJIA or a set exemplar from a specific sector or exchange. Then investments are chosen that match that given group. The idea is that while it may be hard to predict a single investment that will beat the market, the market, whatever that may be, will perform consistently and, in times of loss, will eventually correct and profit.

So, while passive investing may not reap huge returns, it offers the possibility of dependable, constant returns that investors may feel they have more control over (since they will know at any time what investments are being made).

Now, what to choose?

So, there are many variables that can affect both strategies, for good and for bad. It would then not be wise to write off one for the other. When making any financial decision, all possible scenarios and options should be weighed, from how much risk you want to take to whether you believe certain sectors or markets are worth special attention.

“You really need to be realistic about what type of returns you’re expecting from your portfolio over a set time period,” Richard Cayne counsels. “Both active and passive investment strategies have their place, you just need to be thoughtful about what their places are for you. A good financial advisor should be able to work with you and help you plan appropriate allocation.”

“Also, a lot of people forget that their investment decisions are not set in stone,” Richard adds. “Markets fluctuate, so should you. There’s no need to make adjustments at every report of a downturn or potential economic hiccup, but you definitely should revisit your portfolio regularly with your advisor to make sure it reflects market trends and your risk appetite.”

For more information on this or any other financial topics, please contact Richard at Meyer International in Bangkok Thailand.

Asset Allocation - Points to Ponder by Meyer International Bangkok Thailand

According to Richard Cayne, one of the most significant decision for an investor is how to choose an asset allocation model for his/her portfolio. Asset allocation plays a major role in determining the investment performance of an investor. Following a proper asset allocation plan can result in successful returns while following a poor plan or deviating from the plan can result in investor’s underperformance and overall, poor returns.   

Asset allocation is a diversification strategy and investors need to decide wisely upon how to position his/her portfolio as per the given options. Considering the plethora of choices available for the investor, creating an asset allocation portfolio looks very complicated and confusing. However, it is very important to choose appropriately when deciding which assets to hold, says Richard Cayne Meyer International Bangkok Thailand.

Risk is the first point that should be considered extensively by any investor when deciding upon asset allocation. The investor should be well aware of how much risk can he handle. As per Meyer Asset Management Ltd`s Bangkok based servicing arm Meyer International Ltd, every investor should always remember that the market is capricious and therefore he should be ready to face volatility. While an investor can expect stability when investing in fixed income investments it is also a clear fact that these fixed income investments have lower returns. So assessing your tolerance for risk is very essential before you allocate your assets and invest. Once you have identified your risk tolerance levels, it is time to look into equities, mutuals, hedge funds, fixed income, alternative investments, and bonds. During this stage, you need to find an appropriate balance and mix between return and volatility.  A discerning and smart investor chooses the right investment mix as per his own needs and risk tolerance.

According to asset allocation advisor Richard Cayne, the investors often get confused as to which investments and asset classes to consider during asset allocation. However, the answers to this question vary widely as not all investors share the sale risk tolerance levels.   Indeed someone looking at a product with a 20% per annum target return on their portfolio would have a very different risk tolerance to an investor looking for a 5-7% target return.  Richard who worked in Tokyo Japan for over 15 years can certainly attest to the understanding of risk tolerance levels as being extremely important when managing client expectations.  While Japanese based clients for instance would all like double digit returns few have the to stomach to accept the volatility that comes along with such return.  Japanese clients in general would like bank account like volatility with higher than the near zero return banks offer these days.

It is also worthwhile to mention that age is an important factor to be considered while deciding upon asset allocation. Every investor needs to revise his asset allocation as when his age or objectives change. Consider age a factor at an early stage while planning for asset allocation. In basic, young investors have enough time and they can plan investments that result in long-term profitable returns. On the other hand, those who are elderly perhaps in retirement  should choose options, which provide less volatile returns of a more fixed income nature.  

Indeed, there are some other points too that need to be considered while deciding asset allocation for your portfolio but understanding your own risk tolerance will help you make a good start with your asset allocation.

Richard Cayne of the Meyer Group currently lives in Bangkok Thailand and consults individuals and corporations alike on offshore funds and offshore structuring.  Meyer international Ltd is based in Bangkok Thailand and is the servicing arm to Meyer Asset Management Ltd which is a wholly owned entity of Asia Wealth Group Holdings Ltd which is listed on the PLUS stock market in London UK.

Asset Allocation – Diversify For Financial Success

Smart and intelligent asset allocation decisions can help you gain financial success in the long run. That is why one should be quite mindful, alert and careful while making any such decision, says Richard Cayne Meyer International in Bangkok Thailand. The power of asset allocation comes from reducing risk while increasing returns. Reducing risk by combining multiple asset classes, however, is not a simple process. While each asset has its own unique measure of risk, many assets share similar price behavior (their prices go up and down together in any market). Combining such complimentary investments increase the risk of wild changes in price. Trade-offs between asset risk and expected return must also be considered. High yield assets typically experience high volatility, or large changes in price. These assets must be balanced by investments with lower rates of return to protect against large declines in value.

In the opinion of Meyer Asset Management Ltd’s Asian based servicing arm Meyer International Ltd in Bangkok Thailand, successful asset allocation requires finding the proper mix of assets to balance reward with an acceptable level of risk. Proper allocation planning requires asset research and investment analysis. Fortunately, tools are available to assist the independent investor. Popular financial websites offers independent investors help with educational links and software to build portfolio allocations based on a survey of financial questions. For advanced investors, many books have been written to painstakingly explain the theory and practice of asset allocation - also called MPT (Modern Portfolio Theory). Casual investors can purchase mutual funds specifically designed to automate asset allocation based on an expected retirement date. Careful and practical investors can explore the many financial planners and advisory services that offer asset allocation portfolios specific to their needs.

Getting exposure to asset classes like real estate, bonds, stocks, commodities, currencies, as well as geographic diversification all make sense as part of a well balanced portfolio but how are these asset classes correlated?  That is how do stocks in Japan move when stocks in America move down and what happens to the price of gold or oil as all this happens, how stable is real estate when real estate bubble bursts and stocks are going down at the same time?

Look to investments that consider such questions in their investment philosophy and are taking advantage of such opportunities.  It takes development of ones knowledge base into different asset classes that will help grow and protect your assets into the future and increasingly so going forward, says investment portfolio consultant Richard Cayne. In America and Europe only wealthy investors (or high net worth clients with over $1M in invest able funds) can access certain investments like hedge funds or private equity investments and this is consistently a growth area for the rich so if you want to grow your portfolio or maintain it you must start thinking and learning like high net worth individuals overseas who are not afraid to take calculated risks that make sense.  After all there is no point in being ultra conservative and keeping money in the bank earning near zero rates when inflation is running at 3-4% per year as that means your portfolio is running at an inflation adjusted loss and your wealth is disappearing year after year.  Also, it is unwise to expose your portfolio only to Japanese equities (which haven’t really made any gains over the past 10 years unless you have been an exceptional stock picker) when you can diversify it into varying asset classes spread into different geographical areas. Such diversification will give you a truly balanced and hedged portfolio.

As important as asset allocation is for most people, there is a direct correlation between how worried they are about retirement income, and how much they can actually do about it. This is because the more worried you are, the closer you probably are to retirement, and the less time you have to do anything - like save up. Effective 'saving up' requires time. Time so your money can grow. Save an extra $2000 a month, three years before retirement (at age 62), and you'll amass a grand total of $78,870 (averaging 6% growth). Not likely to have a big impact on your retirement lifestyle.

But what if you invested for retirement when you were NOT worried about it? What if you, say for easy figure's sake, $2000 per month. Assuming, average compound rate of return is 6%.)

According to Meyer International in Thailand, instead of starting to save when you start worrying about retirement (at age 62), and amassing that grand total of $78,870 by age 65, you start saving when you're NOT worried about retirement (at age 45) so you end up with, wait for it, --- $911,290 !

What will $911,290 do for you at age 65? It would provide you with $4560 in additional monthly income for the rest of your life (continuing to average 6% growth), and you won't have to touch your capital. Or, perhaps, you could choose to retire earlier!

Consider your options carefully. Each solution offers its own set of advantages and disadvantages. Pick a style that closely reflects your own. Just how important is asset allocation? It's the single largest determinant of your long-term financial success says Richard Cayne at Meyer International in Bangkok, Thailand.