Baillie Gifford senior partner Charles Plowden has taken a swipe at the financial press for “over-simplification” of the active versus passive management debate, arguing that they should focus on the group of managers that can outperform indices rather than the median result.
In a letter to the Financial Times, Plowden says: “Studies based on the median performance of all active managers are interesting but essentially pointless.”
“There is a body of well documented evidence showing that managers with high active share, low portfolio turnover, a long investment horizon and who engage with company management are far more likely to outperform indices after fees.”
“At a broader level the process of active management provides capital to those companies with the best prospects of adding most to our long-term prosperity. If we unthinkingly accept that the industry’s vital job of capital allocation is a passive endeavour we are surrendering this task to programmes driven purely by fund flows.”
Plowden said Baillie Gifford welcomed the debate “not least because it shines a light on best practice in active management”, but he says the asset manager is concerned by the “over-simplification of the topic in the financial press and its consequences”.
Passive funds took 27 per cent of all flows into European open-end funds and ETPs combined last year, up from 18 per cent in 2014, according to Morningstar’s 2015 Global Asset Flows Report.
Over a five-year period to 2014, actively managed funds in Europe dropped charges by 5 per cent compared to a 42 per cent drop in passive products, S&P pointed out in a report released last month. It warned passive fees could drop all the way to zero if asset managers employ them as a loss leader to increase assets under management.