Warren Buffett built a fortune of nearly $60 billion from astute stock picking, but when the 83-year-old dies, the vast majority of the money he leaves his wife will be parked in a fund that simply moves in step with an index. Click for link to original article
“Investment management, as traditionally practiced, is based on a single basic belief: Professional investment managers can beat the market. That premise appears to be false, particularly for the very large institutions that manage most of the assets of most trusts, pension funds, and endowments, because their institutions have effectively become the market.” Charles D. Ellis – Investment Policy, Dow-Jones Irwin, Homewood, 111, 1989, p5.
“When it comes to fund managers and market strategists, this year’s hero usually turns into next year’s zero.” – William Bernstein, The Investor’s Manifesto: Preparing for Prosperity, Armageddon and Everything In Between, 2009
“Over the 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns: All they had to do was piggyback Corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous.” – Warren Buffett, page 5, 2004 Berkshire Hathaway Annual Report
At Gryphon we believe that secular changes to the investment environment will increasingly drive the move to indexation. These changes include:
- More accurate assessment of performance. Do fund managers deserve to be paid Alpha (or active) performance fees if Beta (or passive) performance is generated? If so, are active management fees appropriate?
- Increased market efficiency will result in less opportunities to earn Alpha. Every willing buyer must find a willing seller and will underperform index benchmarks after taking account of fees.
- The move to a lower return, in particular, interest rate environment will increase the focus on costs of products
We believe both active and passive fund management strategies deserve a space in investor portfolios. However, many of our competitors will simply not offer indexation as a solution as they risk destroying their existing “high margin” Alpha business. We don´t believe in overpaying, and neither should you!
Who should invest?
We believe every investors should allocate a core component of their equity portfolio to an indexed fund. This ensures that exposure to equities is obtained at lowest possible cost. Investors should have the propensity for the risk associated with equities and have a long term investment horizon.
|Portfolio Manager:||Abri Du Plessis
|Benchmark:||South African All Share Index Total Return|
|Charges (Incl. VAT):||Initial 0%
Annual Management Fee 0.23%
|Minimum lump sum:||R2,000|
|Minimum debit order:||R200|
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