WEBVTT - Active or passive investing? Part 2: Passive 0:00:00.080 --> 0:00:02.600 We do get a lot more queries during times of volativity. 0:00:02.840 --> 0:00:05.400 Lots of people do what we call panic selling, and 0:00:05.440 --> 0:00:07.640 that is that emotional reaction to oh my god, it 0:00:07.680 --> 0:00:09.280 might lose more money, so I should sell it now 0:00:09.320 --> 0:00:11.840 and cut my losses. Yes, you're cutting your losses, but 0:00:11.880 --> 0:00:15.520 you're also crystallizing those losses. Key we Savor in New 0:00:15.600 --> 0:00:18.439 Zealand has really grown this area of interest in a 0:00:18.480 --> 0:00:23.520 diversified fund so that has brought a new complexity in 0:00:23.560 --> 0:00:27.160 New Zealand. We have far less in index tracking funds 0:00:27.200 --> 0:00:30.840 than Australia does, and that's far less again than America. 0:00:30.880 --> 0:00:32.600 Say so, I think that's a little bit of that 0:00:32.680 --> 0:00:33.760 sophistication journey. 0:00:37.720 --> 0:00:42.000 Kirakoto, Welcome to Shared Lunch. I'm Garth Bray. Active investing 0:00:42.040 --> 0:00:44.599 picking what to buy, sell and the hold, and the 0:00:44.640 --> 0:00:48.440 passive approach tracking the market, buying the momentum. They both 0:00:48.479 --> 0:00:51.519 have their fans and their flaws. We are talking to 0:00:51.560 --> 0:00:55.920 fund managers about both approaches and today I'm with Anna Scott, 0:00:55.960 --> 0:00:59.640 the CEO of Smart to talk about that passes perspective. 0:01:00.120 --> 0:01:03.040 We've also been speaking to an active fund manager, so 0:01:03.080 --> 0:01:06.040 I consider this as the second half of that match. 0:01:06.319 --> 0:01:08.280 But before you get into any of that. Here's some 0:01:08.360 --> 0:01:11.880 important information you should always consider before investing. 0:01:12.240 --> 0:01:14.840 Investing involves the risk you might lose the money you 0:01:14.880 --> 0:01:18.160 start with. We recommend talking to a licensed financial advisor. 0:01:18.880 --> 0:01:22.720 We also recommend reading product disclosure documents before deciding to invest. 0:01:22.959 --> 0:01:25.360 Everything you're about to see and here is current at 0:01:25.360 --> 0:01:26.200 the time of recording. 0:01:26.240 --> 0:01:30.440 Hello Anna, good morning. You are running a series of 0:01:30.800 --> 0:01:34.080 passive funds, aren't you. Yes, so you're probably the best 0:01:34.080 --> 0:01:37.520 person to ask what is your definition of what passive 0:01:37.560 --> 0:01:38.800 investing really means? 0:01:39.360 --> 0:01:41.480 Very good question, because I get asked this quite a lot, 0:01:41.680 --> 0:01:44.000 and I think we try and sometimes get caught up 0:01:44.000 --> 0:01:46.600 in that passive versus active debate. And I'm a big 0:01:46.640 --> 0:01:48.600 believer in actually and you need a bit of both 0:01:48.640 --> 0:01:51.200 for that. But yes, we do have a passive series 0:01:51.240 --> 0:01:53.360 of funds. So when you think about what does a 0:01:53.400 --> 0:01:55.560 fund do, the first thing you start with is what's 0:01:55.600 --> 0:01:57.320 the objective of the fund? Now you can go and 0:01:57.360 --> 0:01:59.880 read the pds to get that, but objectives and the 0:02:00.080 --> 0:02:02.520 words that come with that talk about if you're going 0:02:02.560 --> 0:02:06.360 to be passive, they will talk about match or replicate 0:02:06.600 --> 0:02:10.320 or mirror. So their job is to track an index. 0:02:10.919 --> 0:02:13.000 If you're in an active fund, it might say something 0:02:13.120 --> 0:02:16.079 like beat or outperform. So the first thing is what's 0:02:16.120 --> 0:02:18.520 your objective of your fund? And so a passive fund 0:02:18.560 --> 0:02:21.080 or an index tracking fund is one that does exactly that, 0:02:21.200 --> 0:02:23.880 it tracks an index. Then the next thing is, well, 0:02:23.919 --> 0:02:26.440 what is the index that that fund is meant to 0:02:26.480 --> 0:02:29.680 track or beat? So what is the benchmark? And when 0:02:29.720 --> 0:02:32.919 you get into that, that isn't something that is determined 0:02:33.040 --> 0:02:35.000 necessarily by us as a fund manager. There are a 0:02:35.040 --> 0:02:37.840 bunch of companies who are index providers out in the market. 0:02:37.919 --> 0:02:41.519 So you might have heard of SMP or MSCI, Bloomberg, 0:02:41.639 --> 0:02:45.480 Fltsy do them and they create an index that reflects 0:02:45.520 --> 0:02:48.280 a market. And most of the time those are market 0:02:48.320 --> 0:02:51.640 tracking funds. That's the most common area, which means that 0:02:51.880 --> 0:02:54.840 you're not in a diversified fund, but you've particularly chosen 0:02:54.880 --> 0:02:55.400 a market. 0:02:55.760 --> 0:02:59.120 It sounds like a beguilingly simple idea. It's one that's 0:02:59.160 --> 0:03:01.200 been around for a long time, or is this more 0:03:01.240 --> 0:03:02.640 of a recent rise that we've seen. 0:03:02.760 --> 0:03:04.919 It's been around for a long time, But I think 0:03:04.960 --> 0:03:08.440 that perhaps in the evolution or the sophistication of time, 0:03:08.560 --> 0:03:11.200 ETFs have really brought those to the four because they're 0:03:11.360 --> 0:03:14.360 listed on markets around the world. They're listed in those 0:03:14.400 --> 0:03:17.960 market tracking component parts, rather than probably at the beginning 0:03:17.960 --> 0:03:21.240 of funds when they were unlisted or a managed fund. 0:03:21.720 --> 0:03:25.880 Lots of times those were hedge funds or a diversified 0:03:25.880 --> 0:03:28.120 fund with an active manager. So now we're getting into 0:03:28.160 --> 0:03:30.800 the component parts. I like to think of it actually 0:03:30.840 --> 0:03:33.120 as everyone's sophistication level. It's a little bit like the 0:03:33.120 --> 0:03:35.880 coffee drinker's journey. So at the beginning, and particularly in 0:03:35.880 --> 0:03:38.040 New Zealand, if you go back, say five ten years, 0:03:38.200 --> 0:03:40.320 you had two choices for coffee. It was black or 0:03:40.320 --> 0:03:42.800 it was white. Maybe we then got onto the decaf 0:03:43.200 --> 0:03:46.520 and now people have choices where they might have their 0:03:46.560 --> 0:03:49.840 double shot trim flat latte, or you might have oat milk, 0:03:49.960 --> 0:03:53.240 or you really want your beans to have been come 0:03:53.280 --> 0:03:55.360 from Brazil. So we've got a lot more choice. And 0:03:55.400 --> 0:03:58.240 I think that's the same as the investing public. There's 0:03:58.320 --> 0:03:59.080 more choice there. 0:03:59.200 --> 0:04:01.560 I'm not sure where high class poor over fits into 0:04:01.600 --> 0:04:03.720 that analogy, but I get what you're talking about that 0:04:03.720 --> 0:04:06.400 there's an increasing kind of sophistication to the products and 0:04:06.440 --> 0:04:10.040 so on. I mean, we know that the chezy's client 0:04:10.080 --> 0:04:13.960 base and audience really are into those. What brought those about, 0:04:14.040 --> 0:04:16.280 when did they first sort of emerge and what have 0:04:16.320 --> 0:04:16.960 they enabled. 0:04:17.279 --> 0:04:19.640 So at the very beginning, you could only trade if 0:04:19.680 --> 0:04:22.159 you had a broker, and that was a physical person, 0:04:22.400 --> 0:04:25.960 right who traded on the exchange. That's become far more electronic. 0:04:26.000 --> 0:04:29.160 We've seen the growth of online trading platforms and we've 0:04:29.160 --> 0:04:33.200 seen that follow the global trend to where real everyday 0:04:33.200 --> 0:04:36.400 people retail we call them in the investing market. Retail 0:04:36.440 --> 0:04:39.800 customers want to get involved and diversify their own assets. 0:04:39.960 --> 0:04:42.520 Because you think about the evolution of New Zealand. You 0:04:42.600 --> 0:04:44.680 might have known about property, right we start and we 0:04:44.760 --> 0:04:47.200 grow up on that the physical property that we live 0:04:47.200 --> 0:04:50.400 in or maybe we rent out. Now we're diversifying. So 0:04:50.440 --> 0:04:53.160 we talked about cash, and people knew about term deposits, 0:04:53.320 --> 0:04:55.919 and then they knew about bonds and now equities and 0:04:55.960 --> 0:04:58.200 it's an extension of that. So rather than go to 0:04:58.240 --> 0:05:00.840 the share market and decide I'm going to select these 0:05:00.880 --> 0:05:03.400 two stocks myself because I think they're going to be 0:05:03.760 --> 0:05:06.200 winners on the long term, actually I can buy a 0:05:06.240 --> 0:05:09.360 basket of those stocks. So the most common example that 0:05:09.400 --> 0:05:11.760 we give is the US five hundred, because there's a 0:05:11.800 --> 0:05:14.800 lot of interest in that as the biggest economy and 0:05:14.839 --> 0:05:18.000 biggest market in the world. So when we create an 0:05:18.040 --> 0:05:20.640 index tracking fund for the US five hundred, we are 0:05:20.640 --> 0:05:23.440 giving the opportunity to track that market. So our job 0:05:23.480 --> 0:05:25.720 is to mirror, to replicate, to give you the same 0:05:25.760 --> 0:05:28.240 returns that that market would give you. But there's five 0:05:28.320 --> 0:05:30.480 hundred stocks in that index. That's why it's called the 0:05:30.560 --> 0:05:33.640 US five hundred. And when you do that, how do 0:05:33.720 --> 0:05:35.719 you know which ones of those are going to be 0:05:35.760 --> 0:05:37.680 the best performing or not. So a lot of people 0:05:37.800 --> 0:05:40.080 like the idea that you are actually just getting the 0:05:40.120 --> 0:05:43.080 returns of that market. So an index provider puts them 0:05:43.080 --> 0:05:46.520 together with the waitings. They specify what those waitings are 0:05:46.520 --> 0:05:49.440 and the proportion of those stocks within that, and then 0:05:49.480 --> 0:05:52.080 our job as the fund manager is to buy each 0:05:52.120 --> 0:05:55.440 of those five hundred stocks in the waiting to match 0:05:55.640 --> 0:05:58.960 that that the index provider specifies. So our job is 0:05:59.000 --> 0:06:01.760 to hold all five hundred in the same waiting to 0:06:01.920 --> 0:06:05.160 give that investor the same return as if they were 0:06:05.160 --> 0:06:08.240 doing that themselves, and the same return as that whole market. 0:06:08.760 --> 0:06:11.440 So if you're doing that in the S and P 0:06:11.560 --> 0:06:14.520 five hundred, then like a third of that shareholding that 0:06:14.560 --> 0:06:17.000 you've got to reflect that index is going to be 0:06:17.040 --> 0:06:20.680 the Big seven, and then if there are movements there, 0:06:20.839 --> 0:06:23.159 you're going to have to try and match those. Not 0:06:23.200 --> 0:06:25.640 so much in real time, but you're catching up here. Yeah. 0:06:25.720 --> 0:06:28.800 Our job is the index provider will on a schedule, 0:06:29.000 --> 0:06:31.800 most of them are quarterly, will specify that they will 0:06:31.880 --> 0:06:35.680 rewait or rebalance the index, and so our job is 0:06:35.720 --> 0:06:38.279 to match that. So every quarter you'll hear that talk 0:06:38.320 --> 0:06:40.640 in the market about oh it's the rebalance week, and 0:06:40.680 --> 0:06:43.120 a lot of movement and trading will go on in 0:06:43.120 --> 0:06:46.320 index tracking fund managers because our job is to make 0:06:46.360 --> 0:06:49.680 sure that when the index provider specifies that there's been 0:06:49.800 --> 0:06:53.279 changes in market capitalization and value in the market and 0:06:53.320 --> 0:06:56.120 they've reweighted all those companies, our job is to make 0:06:56.160 --> 0:06:58.200 sure that our holding matches that. 0:06:58.279 --> 0:07:01.760 Waiting Again, it sounds a bit like football, like you know, 0:07:01.800 --> 0:07:04.320 the English Premier League. You get sort of relegation or promotion. 0:07:04.440 --> 0:07:06.839 You're either on the top of the table or you've 0:07:06.920 --> 0:07:10.200 dropped off for whatever reason. Your performance as a company 0:07:10.600 --> 0:07:13.160 doesn't entitle you to be in that bracket. As you say, 0:07:13.200 --> 0:07:15.640 that happens like quarterly. Usually I know that there was 0:07:15.680 --> 0:07:17.640 a rebalance. I think for a couple of the New 0:07:17.720 --> 0:07:20.960 Zealand indexes end of last week or so on, YEP. 0:07:21.200 --> 0:07:24.040 So you had, let's take a company, for example, Ryman 0:07:25.000 --> 0:07:28.560 dropped out of the top ten yep and A two 0:07:29.040 --> 0:07:31.840 jumped in there. But there would have been a lot 0:07:31.880 --> 0:07:36.600 of change happened before that decision, and there's potentially a 0:07:36.640 --> 0:07:39.040 bit of value that's gone missing. Is this the bit 0:07:39.160 --> 0:07:41.880 that you have to just accept You don't get if 0:07:41.920 --> 0:07:43.560 you are in a passive fund that you're going to 0:07:43.760 --> 0:07:44.640 be catching up. 0:07:45.400 --> 0:07:47.920 So it comes back to what's your goals? Right in 0:07:47.920 --> 0:07:50.360 index tracking funds, So in that debate about should you 0:07:50.440 --> 0:07:54.400 be with a passive manager or an active manager, index 0:07:54.440 --> 0:07:56.720 tracking funds are tracking a market, so you can decide 0:07:56.760 --> 0:07:59.600 which slice of that market you can be US five hundred, 0:07:59.640 --> 0:08:04.400 the ASX two hundred, emerging markets, Asia, Pacific, robotics and automation. 0:08:04.560 --> 0:08:07.880 They're all slices of a market, and you're choosing the 0:08:07.920 --> 0:08:10.360 market that you wish to be tracking the performance on. 0:08:10.560 --> 0:08:13.520 And most of the time that's a long term play 0:08:13.600 --> 0:08:16.240 because if you want to get the value of the 0:08:16.280 --> 0:08:21.360 instex ten, say, over your investment horizon, then you're wanting 0:08:21.440 --> 0:08:25.120 that whole market return over that horizon, whether there's a 0:08:25.160 --> 0:08:28.600 little bit of lost value and one quarterly rebalanced cycle 0:08:28.640 --> 0:08:31.440 because someone dropped out and someone Elstrup came in, and 0:08:31.480 --> 0:08:34.360 you need to pay the cost of it in the 0:08:34.400 --> 0:08:36.560 fund fee. Right, you're not paying additional to that, but 0:08:36.640 --> 0:08:39.920 the fund cost of doing that trading in the long term, 0:08:39.920 --> 0:08:43.280 that's not really part of the objective of the fund. 0:08:43.480 --> 0:08:45.480 Forget what I mean. You know, if you're if you're 0:08:45.520 --> 0:08:50.680 investing for twenty years until retirement, then when you're choosing 0:08:50.880 --> 0:08:54.000 a fund manager, you're really saying, well, do I think 0:08:54.000 --> 0:08:56.720 that the US five hundred over twenty years is going 0:08:56.760 --> 0:09:01.080 to perform better or worse than an active fund manager 0:09:01.120 --> 0:09:04.880 with specific portfolio managers and people making stock selections. And 0:09:04.880 --> 0:09:07.520 that's why there's a lot of trend or data that 0:09:07.640 --> 0:09:11.079 talks about long term investing horizons the market will be 0:09:11.160 --> 0:09:13.760 to person, twenty years is a long time for the 0:09:13.800 --> 0:09:16.319 same portfolio managers to sit there and manage that fund 0:09:16.320 --> 0:09:18.560 in the same way and beat the market every single year. 0:09:18.840 --> 0:09:21.560 And that's where you get that kind of passive because 0:09:21.600 --> 0:09:24.640 it's about market growth and long term market growth versus 0:09:24.679 --> 0:09:27.520 individual people stock picking. But that's a long term play. 0:09:28.240 --> 0:09:30.720 If you're investing for a two year time horizon, you 0:09:30.840 --> 0:09:33.680 might choose a particularly well performing fund with some massive 0:09:33.679 --> 0:09:36.760 managers or folio managers who you think are really focused 0:09:36.800 --> 0:09:39.640 on that, and you're not going to be worried about 0:09:39.679 --> 0:09:42.120 whether the New Zealand twenty is going to be up 0:09:42.200 --> 0:09:43.240 or down in two years time. 0:09:44.040 --> 0:09:47.600 We're in an error of volatility. Does that give a 0:09:47.600 --> 0:09:49.560 preference one way or the other. Does it say, hey, 0:09:50.000 --> 0:09:52.960 now's a good time to be looking at the noise 0:09:53.120 --> 0:09:55.120 and trying to screen that out and go passive, or 0:09:55.200 --> 0:09:57.600 is it, hey, you actually need to think about active 0:09:57.640 --> 0:10:01.080 management to try and take advantage of that to deal 0:10:01.200 --> 0:10:04.160 with stuff coming in much more quickly, news coming in 0:10:04.240 --> 0:10:06.600 much more quickly. Change is happening much more quickly. 0:10:07.120 --> 0:10:08.959 So I believe in a bit of both. What about 0:10:08.960 --> 0:10:12.319 in times of volatiley again, how long you're investing for? 0:10:12.920 --> 0:10:15.760 What is your goal with that investment? So if I 0:10:15.960 --> 0:10:17.959 was in Key with Saver and I think I want 0:10:18.000 --> 0:10:20.400 to buy a house in the next year, well that 0:10:20.559 --> 0:10:23.440 means that my risk tolerance ride is lower right now 0:10:23.640 --> 0:10:26.280 because I don't want to be able to want to 0:10:26.320 --> 0:10:28.959 take my money out at a downturn in the economy, 0:10:29.400 --> 0:10:33.040 So it's about the diversification of where you're invested. And 0:10:33.120 --> 0:10:35.199 we see, particularly in charesis when we look at the 0:10:35.520 --> 0:10:38.480 top six ETFs that people are trading there, we can 0:10:38.520 --> 0:10:41.959 see that people are actually building a portfolio. So in 0:10:41.960 --> 0:10:44.560 that top six we have the US five hundred, the 0:10:44.720 --> 0:10:49.079 NZD X fifty, the ASX twenty. Actually we have Asia 0:10:49.120 --> 0:10:52.400 Pacific emerging markets. So actually we can see that people 0:10:52.480 --> 0:10:56.520 are spreading their investment around the globe and around different 0:10:56.520 --> 0:10:59.319 markets to try and smooth out that volatility. 0:10:59.440 --> 0:11:01.480 Is that the respectants to the flux that you're seeing 0:11:01.520 --> 0:11:03.079 is that a lot of people are just going, Hey, 0:11:03.120 --> 0:11:05.360 I'm just going to tune the noise out and I'm 0:11:05.400 --> 0:11:08.520 going to go for the ride and work out that 0:11:08.559 --> 0:11:10.280 twenty years from now to be fine. Or do you 0:11:10.360 --> 0:11:13.200 a mean to you? As fund managers actually hearing from 0:11:13.240 --> 0:11:15.760 people panicking and saying what do I do? Yeah? 0:11:15.840 --> 0:11:20.520 Volatility is always really concerning because money is a personal thing, right, 0:11:20.600 --> 0:11:23.760 so it's emotional when you look at your balance and 0:11:23.800 --> 0:11:26.800 it's down. So we do get a lot more queries 0:11:26.880 --> 0:11:29.040 during times of volatilty because the point of being in 0:11:29.040 --> 0:11:31.040 a market tracking fund is you're going to track the 0:11:31.040 --> 0:11:34.040 performance of the market. So when the US market drops 0:11:34.040 --> 0:11:37.240 off four percent overnight, then your value of your fund 0:11:37.280 --> 0:11:40.200 holding is also going to do that. The point is 0:11:40.960 --> 0:11:43.559 what are you invested for and should that matter? Lots 0:11:43.600 --> 0:11:46.000 of people do what we call panic selling, and that 0:11:46.160 --> 0:11:48.319 is that emotional reaction to oh my god, it might 0:11:48.360 --> 0:11:49.840 lose more money, so I should sell it now and 0:11:49.840 --> 0:11:52.520 cut my losses. Yes, you're cutting your losses, but you're 0:11:52.520 --> 0:11:56.240 also crystallizing those losses. So if you don't need the 0:11:56.280 --> 0:11:59.240 money today, you should hold on because if you look 0:11:59.320 --> 0:12:03.280 at the historical trend on a long term basis, markets 0:12:03.360 --> 0:12:07.559 largely go and grow. But that's not to say, right, 0:12:07.559 --> 0:12:10.840 we always say that previous performance is no indication of future. 0:12:11.440 --> 0:12:13.640 Do you really have to be clear about again what 0:12:13.760 --> 0:12:17.400 you invested for. It's not the old adage of it. 0:12:17.520 --> 0:12:20.120 It's not the timing the market and will you buy 0:12:20.160 --> 0:12:23.520 and sell, it's actually time in the market. It's that accumulation, 0:12:24.200 --> 0:12:27.800 it's the compounding investment. Those are the things over the 0:12:27.880 --> 0:12:31.920 long term if you're saving for retirement that really help out. 0:12:32.760 --> 0:12:36.320 Sure, And I guess a part of that is the 0:12:36.360 --> 0:12:38.520 cost of all of that activity and what it's costing 0:12:38.559 --> 0:12:42.400 you to take part that's often a football that it's 0:12:42.440 --> 0:12:45.680 thrown around. I suppose between the passive and active side, Right, 0:12:45.800 --> 0:12:49.000 is that a passive approach you can afford to do 0:12:49.040 --> 0:12:50.600 it a little bit more cheaply. 0:12:50.960 --> 0:12:53.400 Yeah, So we talk about the cost yep so the 0:12:53.440 --> 0:12:57.320 three p's of fund management and when you look into 0:12:57.320 --> 0:12:59.520 a fund to kind of the philosophy of the funds. 0:12:59.520 --> 0:13:01.800 We talked about the objective, the process that they run. 0:13:01.880 --> 0:13:04.160 So in an index tracking, that is the tracking and 0:13:04.200 --> 0:13:07.600 the people who do that. People become far more important 0:13:07.640 --> 0:13:11.480 in an active fund because you are actually selecting stocks 0:13:11.920 --> 0:13:15.440 and in within that fund you have different objectives as well. Right, 0:13:15.440 --> 0:13:17.560 you're trying to outperform or beat, but it's a particular 0:13:17.600 --> 0:13:19.920 market you're trying to outperform. But when we look at 0:13:19.920 --> 0:13:22.679 the costs over all of those, both of us, in 0:13:22.760 --> 0:13:24.920 terms of all those types of funds, are paying an 0:13:24.960 --> 0:13:27.760 index provider for an index. Some of those indexes are 0:13:27.760 --> 0:13:30.160 more expensive and more esoteric than others, but you've got 0:13:30.160 --> 0:13:33.400 that cost both sets trading. So you're going to rebalance, 0:13:33.480 --> 0:13:35.600 or you're going to choose stocks that you no longer 0:13:35.760 --> 0:13:38.200 like and think have value, or depending on the feature 0:13:38.240 --> 0:13:41.240 of your fund, you might be volatility trading fund or 0:13:41.440 --> 0:13:44.080 looking for cheapness versus long term value. But you're going 0:13:44.120 --> 0:13:46.320 to make different selections and choices, so you're both going 0:13:46.360 --> 0:13:48.880 to trade on that. Where it comes into the underlying 0:13:48.880 --> 0:13:51.360 cost and where you traditionally see that an index tracking 0:13:51.400 --> 0:13:54.079 fund would have a cheaper management fee is the cost 0:13:54.080 --> 0:13:57.040 of research and the cost of people. Because if you 0:13:57.040 --> 0:13:59.320 are an active fund manager and so you are pouring 0:13:59.400 --> 0:14:04.439 over stocks and selecting those based on your own philosophy, 0:14:04.880 --> 0:14:07.439 then that is a labor intensive job. You need more 0:14:07.480 --> 0:14:09.960 research analysts in that team. You need to pay for 0:14:10.120 --> 0:14:13.560 more research to get into what those companies' analytics are. 0:14:13.960 --> 0:14:16.800 And you have a market professional who is a conviction 0:14:17.080 --> 0:14:20.720 led stock picker, right, and that's not everyone's cup of tea. 0:14:20.760 --> 0:14:22.720 There's a lot of nights that you don't sleep with 0:14:22.800 --> 0:14:25.160 that when you've got a position on. So that is 0:14:25.160 --> 0:14:28.520 inherently a more expensive fund to run for research and 0:14:28.680 --> 0:14:31.560 expertise and number of people that you need in your 0:14:31.560 --> 0:14:35.680 team versus a pure index tracking fund isn't going to 0:14:35.800 --> 0:14:38.000 need that research because the job is to get the 0:14:38.040 --> 0:14:41.880 index provider's information and weight your portfolio in line with that. 0:14:43.200 --> 0:14:45.400 I think someone we spoke to recently said it's the 0:14:45.400 --> 0:14:49.680 difference between professional football and more social league football. Is 0:14:49.720 --> 0:14:50.960 that an unfair comparison. 0:14:51.680 --> 0:14:54.360 There's probably a little unfair, but I think they just 0:14:54.400 --> 0:14:56.160 so if we come back to the philosophy, they're very 0:14:56.160 --> 0:14:59.040 different philosophies. You have a different job function in each 0:14:59.080 --> 0:15:01.640 of those and if you're in a restaurant, say that's 0:15:01.640 --> 0:15:04.440 a difference between being the sou chef or in charge 0:15:04.440 --> 0:15:07.600 of the vegetable plating versus the overall headshift who's putting 0:15:07.640 --> 0:15:11.120 together a whole menu. They're different jobs. And one thing 0:15:11.160 --> 0:15:13.400 I think that we think about when we think about 0:15:13.840 --> 0:15:16.200 active and passive is and this is why I continue 0:15:16.240 --> 0:15:18.800 to talk about index tracking, because if there's an index 0:15:18.840 --> 0:15:20.800 in a market, then that's what you're doing. In a 0:15:20.840 --> 0:15:24.960 passive fund, that's your job right to replicate. In mirror key, 0:15:25.000 --> 0:15:27.680 we Savor in New Zealand has really grown this area 0:15:27.760 --> 0:15:32.160 of interest in a diversified fund. So that has brought 0:15:32.200 --> 0:15:37.080 in new complexity. When you get into a diversified fund, anybody, 0:15:37.200 --> 0:15:40.440 regardless of whether you're using index tracking, building blocks or 0:15:40.480 --> 0:15:44.840 stock selection, you're making a active choice on how you 0:15:44.960 --> 0:15:47.920 build that diversified fund. And so that's where the line. 0:15:47.960 --> 0:15:50.760 I think that blurs between passive and active. So yes, 0:15:50.840 --> 0:15:53.440 it's smart. Do we have a bunch of index tracking etips, 0:15:53.680 --> 0:15:56.800 Absolutely we do. Do We also, under the super Life 0:15:56.800 --> 0:15:59.600 brand that we're going to change to Smart, have diversified 0:15:59.640 --> 0:16:02.640 fund We have those two. You need extra acid alloication 0:16:02.760 --> 0:16:03.960 expertise to go into that. 0:16:04.280 --> 0:16:06.360 So give you a little bit more color, give you 0:16:06.360 --> 0:16:08.080 a little bit more cost as well, from the sound 0:16:08.120 --> 0:16:08.400 of it too. 0:16:08.480 --> 0:16:11.760 Absolutely, but that's where you get the extra expertise. So 0:16:11.840 --> 0:16:14.200 we talk about how risk tolerant are you. You might 0:16:14.240 --> 0:16:17.480 be conservative or balanced or growth. With that becomes a 0:16:17.680 --> 0:16:22.200 pretty global standard way of thinking how you spread your 0:16:22.240 --> 0:16:26.120 assets for that. So a balance portfolio pretty traditionally is 0:16:26.440 --> 0:16:30.640 sixty percent in equities which are called growth assets forty 0:16:30.680 --> 0:16:34.800 percent and bonds or fixed income or defensive stable assets. 0:16:34.920 --> 0:16:38.000 That's the worldwide acknowledged. You can chat YOUPT that and 0:16:38.040 --> 0:16:40.200 will tell you what your standard asset allocation is. 0:16:40.280 --> 0:16:40.560 Right. 0:16:41.080 --> 0:16:43.000 So from there, right, we've started at the top. We've 0:16:43.000 --> 0:16:46.720 got some growth, some stability. That's the balance. But underneath 0:16:46.760 --> 0:16:49.560 that you've got asset categories. You've got New Zealand equities, 0:16:49.600 --> 0:16:53.600 Australian equities, International, the Europe. You've got fixed income which 0:16:53.640 --> 0:16:56.400 comes into your stable. You've also got cash, and increasingly 0:16:56.400 --> 0:16:59.400 you've got alternative assets, so you have to look at 0:16:59.400 --> 0:17:02.520 those in that. You've got commodities. We've talked about gold 0:17:02.600 --> 0:17:06.800 before as a great diversifier. You've got property that's become listed. 0:17:06.840 --> 0:17:10.280 Property become really popular and far more standard in terms 0:17:10.280 --> 0:17:12.679 of that. So you've got asset categories. Then what you 0:17:12.720 --> 0:17:14.479 do as a fund manager and say, right, well, if 0:17:14.520 --> 0:17:18.120 those are the core ingredients, what's my strategic acid allocation? 0:17:18.359 --> 0:17:20.359 So when I break down the sixty forty, how do 0:17:20.440 --> 0:17:23.480 I make that up? And in that zone, we're all 0:17:23.520 --> 0:17:27.040 making a decision about where our target waiting is in 0:17:27.119 --> 0:17:29.720 any of those asset categories and what our range is. 0:17:30.359 --> 0:17:33.120 So you set that'll be in the SIPO and that's 0:17:33.119 --> 0:17:36.000 what you're set with. But then within that you have 0:17:36.080 --> 0:17:38.880 tactical plays. So even though you might be labeled a 0:17:38.960 --> 0:17:43.240 passive fund manager, when you're buying a diversified fund that's 0:17:43.280 --> 0:17:48.720 growth or balanced, we're all making conscious choices around acid allocation. 0:17:49.280 --> 0:17:52.840 So here it's smart when we choose our diversified fund, 0:17:53.000 --> 0:17:55.960 we will build that up with index tracking building blocks 0:17:56.160 --> 0:17:58.879 because we think that those are tracking the market and 0:17:59.359 --> 0:18:03.040 are a good lower cost alternative. So that's how we 0:18:03.040 --> 0:18:05.199 build it, but we still need to put that together 0:18:05.520 --> 0:18:08.159 and know how our acid allocation looks. If you're an 0:18:08.160 --> 0:18:11.399 active fund manager, you've got the same acid allocation that 0:18:11.440 --> 0:18:13.720 you're working on, but at the lower level of fund, 0:18:13.920 --> 0:18:16.280 you might choose instead of having index tracking funds, you 0:18:16.359 --> 0:18:19.480 might choose to build it up via active stock selection. 0:18:19.760 --> 0:18:23.200 So you're picking individual names, individual companies to build. 0:18:23.080 --> 0:18:25.280 Which is a little bit more intensive but potentially gives 0:18:25.280 --> 0:18:29.159 you exposure to greater greater gain but greater losses. 0:18:29.359 --> 0:18:31.520 Well yeah, and so there's a whole lot more onus 0:18:31.560 --> 0:18:34.560 there on doing the research, finding the right companies and 0:18:34.600 --> 0:18:37.040 doing that. The tricky thing for investors, I think with 0:18:37.160 --> 0:18:40.440 a diversified fund is there's no easy benchmark or index, 0:18:40.760 --> 0:18:46.240 So there's no global New Zealand based investor balanced risk profile, 0:18:46.280 --> 0:18:48.879 there's no index for that. So it's really hard to 0:18:48.920 --> 0:18:52.080 compare the performance of our diversified funds. And that's why 0:18:52.119 --> 0:18:55.680 it comes into league tables and why people constantly talk 0:18:55.760 --> 0:18:59.280 in that space around as your fund performing in the 0:18:59.280 --> 0:19:01.680 top quart eye or not, and where does it rank 0:19:01.760 --> 0:19:04.199 versus its peers. But when you dig into all of 0:19:04.200 --> 0:19:07.080 our sipos, we're all going to be slightly different in 0:19:07.119 --> 0:19:10.159 our acid allocation that we've employed and the width of 0:19:10.160 --> 0:19:14.159 our ranges and where we can tactically tilt given market conditions. 0:19:14.240 --> 0:19:16.960 So we might hold more in cash right now less 0:19:17.000 --> 0:19:20.320 than international equities, and we can do that because that's 0:19:20.320 --> 0:19:24.120 within an acid allocation guideline rather than very specifically having 0:19:24.200 --> 0:19:27.800 to track to. There's no global common standard of what 0:19:27.840 --> 0:19:29.239 a diversified fund should look like. 0:19:29.400 --> 0:19:31.240 So does that mean that some of the umpires were 0:19:31.280 --> 0:19:36.040 used to for this game? The spever or MJW, the 0:19:36.400 --> 0:19:39.600 people that produce tables that rate the performance of various funds, 0:19:39.920 --> 0:19:42.720 are kind of only part of the picture. They're not 0:19:42.720 --> 0:19:45.760 going to give you a really solid answer thereon where 0:19:45.760 --> 0:19:47.040 to look to put your mind. 0:19:47.359 --> 0:19:49.680 So they can tell you because you will over time, 0:19:49.760 --> 0:19:51.560 you know, and you look at the one year, the 0:19:51.640 --> 0:19:54.000