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Baillie Gifford partner criticises press in active versus passive debate

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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.

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Comments

There are 3 comments at the moment, we would lover to hear your opinion too.

  1. “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.”

    *snort* And Roy Hodgson has recently argued that the football press should focus on the matches his England team won rather than the median result.

  2. In essence Mr Plowden is perfectly right. My research and that of Mr Bentley has shown that when picking the right fund (and the right manager) outperformance of the index is the norm. This seems to apply in particular to investment trusts.
    Unfortunately too few advisers either don’t have the ability or just can’t be bothered to do the necessary work.
    Sascha’s analogy can be extended – why concentrate on the England team when you could choose (say) Germany, Italy or Brazil. I accept that these may not be optinal examples as I admit I know very little about football.

  3. One could argue that is is not just passive proponents that “over-simplify” this topic, judging by the IA’s pathetic attempt at sticking up for active management today.

    Absolutely, what the industry needs is less short-termism, less trading, lower AMC’s. It will certainly help the end user. Bogle, Buffett and others have been saying it for decade’s, I’m not sure it’s particularly much of a revelation.

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