STEPHEN CRANSTON: Investors not running the same race
There are many vocal supporters of the indexbased approach to investment. It is hard to get away from the 10X ad campaign, which features Nik Rabinowitz. The academic, William Sharpe, wrote that after costs, the returns from the average actively managed fund will be less than the returns of the average passively managed fund. The compounding effect of higher costs is the single most important differentiator between the approaches. I have come across the first coherent defence of active management for some time. It’s from Gavin Ralston, head of active allocation at Schroders. He also has the absurd Gilbert & Sullivan-style title of "head of thought leadership". Ralston says most of the focus is on pure equity funds, where there are arguments for an index strategy. But when it comes to a goals-based approach, the goalposts shift. There is no passive way to replicate an inflation plus 4% strategy, even with a simple passive fund with 60% in equities and 40% in bonds. Such a mix of glob...
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