Active Fund Management and Preferences

Even though historically actively managed funds do not outperform passive funds, investors show preference for actively managed funds. In particular, it appears that investors who choose actively managed growth funds can expect portfolio outperformance on the upside. In contrast, investors who choose actively managed value funds are likely to experience account outperformance when markets decline. Therefore, in selecting investments appropriate for particular clients, firms that offer private wealth management in Ontario would be well advised to determine clients’ preference for outperformance in either rising or declining markets.

Actively managed funds may adhere to a number of different styles. Two of these styles are growth and value. A private wealth management Ontario firm will know that a growth style typically focuses on investing in companies that are expected to have accelerated rates of earnings improvement. These wealth management companies in Toronto and other cities will also be able to explain to their clients that a value style usually seeks the securities of corporations that may not generate exceptional earnings, but that are likely to increase in price.

What do Investors Look For?

When deciding whether to choose a passive or active fund for a client, a high net worth wealth management firm may consider downside protection and upside potential. For example, Valery Polkovnichenko, Kelsey D. Wei, and Feng Zhao report in the Journal of Finance, vol. 74, no. 2 that in comparison to passively managed funds, active funds with a growth bias achieve more upside performance, while active funds that adhere to a value style deliver greater downside protection.

The Role of Active Fund Management

Historically, when creating portfolios, wealth management companies in Toronto and other cities have tended to focus on mean performance. However the research of Polkovnichenko, Wei and Zhao suggests it is also or more important to consider the distribution of returns. In other words, the performance of funds when markets move to the extreme upside or downside impacts the demand for actively managed funds. This new dimension of skill is an important consideration in deciding the role that active fund management and security selection should play in a client’s portfolio.

At Enriched Investing Incorporated, in conducting private wealth management in Ontario and other provinces we create portfolios designed to meet each client’s investment needs. Our team of professionals considers relevant factors that may include a client’s preference for outperformance in either declining or rising markets. We monitor and rebalance your investments as appropriate for your risk tolerance. Learn more about our services and visit our website to speak to a professional.

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