For & Against

Do We Need Fund Managers?

Bulle und Br
When push comes to shove, can fund mangers outperform passive funds? Source: Fotolia

Experience counts

Susanne Schier, head of Handelblatt’s investment team, says making a choice instead of just relying on the index can pay off.

Criticisms of active fund managers always sound the same. The rate of return is poor – so poor, a monkey make a better pick throwing a dart at a newspaper’s stock market pages. But it’s nonsense to be suspicious of investment professionals.

It is certainly true that active fund managers aren’t always able to beat important indexes like the DAX, the EURO STOXX 50 or the S&P 500. Many investment professionals didn’t expect such an upswing in the stock markets right after the U.S. elections last November. There, exchange-traded funds (ETFs) might have made a better profit in the short term. All the same, there are good reasons to rely on the experts.

For as long as the markets are on an upward trend, and almost all stocks are rising, it is quite easy to reap profits with a passive index fund. But in poor market phases, active managers have a better chance of limiting investors’ losses and avoiding the badly affected shares suffering most.

In times when banks and insurers are considered to show little promise, an active fund with European stocks can bring in more for investors than a passive fund that strictly relies on the EURO STOXX 50. Despite a couple of companies being relegated out of the benchmark index – last year, for example, Generali and Unicredit were dropped – the euro zone’s leading index still has many financial service providers.

Another advantage of active fund managers is that they often cultivate direct contact with the companies in which they invest, and submit lists of questions to company leaders – something a passive fund cannot do.

Investors are also better off in certain market segments when they put their trust in active managers – such as in less liquid emerging countries. ETFs are likely to have difficulties exactly reproducing a number of indexes – such as when listed companies are state-owned. Then, it can be better if an experienced manager selects the companies the fund can actually invest in.

It is also obvious, however, that active fund managers don’t work for nothing. For that reason, investors should examine fees closely when choosing a fund – the differences are often great. Finding the right fund therefore takes a bit of effort. But long-term involvement can pay off.

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