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Speaker 1: An active manager will look at bad news and say, hmm,

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Speaker 1: does that bad news fundamentally change the strategic price of

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Speaker 1: this company. What we've seen is Tariff's being introduced, Tariff's

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Speaker 1: not being understood, a huge amount of noise in the US,

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Speaker 1: and the market now readjusting and saying, you know, it's

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Speaker 1: not quite as positive as we thought it was going

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Speaker 1: to be. Well, it's stalking, but probably what I'd call

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Speaker 1: is good research, good research, quality insights, understanding where you

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Speaker 1: believe the company should fundamentally be valued versus where it's

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Speaker 1: valued today.

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Speaker 2: Curakoto, Welcome to Shared Lunch. I'm Garth Bray. Active investing,

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Speaker 2: picking what to buy, sell or hold. It can be

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Speaker 2: an experience or rewarding journey, but not for the faint hearted.

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Speaker 2: At the same time, it's easier than ever to opt

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Speaker 2: in to exchange traded funds ETFs and adopt a more

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Speaker 2: passive strategy. So we're talking to investment strategists and experts

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Speaker 2: about those two approaches, active and passive. And today we're

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Speaker 2: joined by the CEO of Pie Funds, Anna Marie Lockyer.

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Speaker 2: We'll be talking in an upcoming episode to a passive specialist,

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Speaker 2: and it's important to think of these as two halves

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Speaker 2: of the same game. But before we get into all

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Speaker 2: of that, here some important information you should always consider

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Speaker 2: when investing.

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Speaker 3: Investing involves the risk you might lose the money you

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Speaker 3: start with. We recommend talking to a licensed financial advisor.

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Speaker 3: We also recommend reading product disclosure documents before deciding to invest.

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Speaker 3: Everything you're about to see and here is current at

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Speaker 3: the time of recording.

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Speaker 2: Welcome, Hi, Welcome to shared lunch.

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Speaker 1: Thank you for having me Gar.

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Speaker 2: Look, when we talk about active investing, is it literally

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Speaker 2: just the art of picking winners?

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Speaker 1: I mean, active investing is a strategy. We're an investor

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Speaker 1: or a company like Pie Funds. An active investment manager

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Speaker 1: will make deliberate decisions to buy, sell, or hold a stock.

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Speaker 1: They'll make those decisions in an attempt to outperform the

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Speaker 1: market or a specific benchmark, and they may do that

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Speaker 1: based on research, market trends, valuations, or experience. Passive investing,

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Speaker 1: on the other hand, is in contrast, the goal really

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Speaker 1: is just to match the market returns, like tracking an

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Speaker 1: index that might be the NZX fifty, that might be

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Speaker 1: the S and P five hundred. Investors there will typically

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Speaker 1: just use ETFs or index funds which have a lower

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Speaker 1: fee to aim to match market performance. I was I

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Speaker 1: overheard a call actually this morning with our investment experts

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Speaker 1: who said the DAX, which is the German index of

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Speaker 1: their top companies, had had a fifteen percent increase over

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Speaker 1: the last year. Fifty eight percent of that fifteen percent

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Speaker 1: increase came from one stock. So if an investor is

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Speaker 1: sitting in a passive fund, they are going to get

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Speaker 1: the fifteen percent increase. If an investors sitting in an

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Speaker 1: active fund and their active manager has researched the companies

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Speaker 1: within that index and chosen SAP, which had contributed fifty

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Speaker 1: eight percent, they would overweight SAP, for example.

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Speaker 2: And that's where you get the difference.

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Speaker 1: And that is where active managers truly aim to add

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Speaker 1: performance over the long term.

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Speaker 2: Is that hard to explain to some clients, I suppose

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Speaker 2: because they might be a little bit nervous and thinking, oh, gosh,

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Speaker 2: it's a lot of volatility. Can I trust these people

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Speaker 2: to write it out for me?

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Speaker 1: Yeah, I think. I mean, a passive investor will get volatility.

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Speaker 1: An active investor may get more or less volatility, depending

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Speaker 1: on how the composition of the portfolio is playing out. Again,

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Speaker 1: if we're thinking about kipsaver investors and the need to

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Speaker 1: accept volatility, it is really important they think about the

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Speaker 1: long term. Recently, there was a little bit of volatility

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Speaker 1: in the market and that would have been experienced by

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Speaker 1: both passive and active investors, and one of our clients

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Speaker 1: change the profile of their fun choice from a growth

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Speaker 1: fund to a conservative fund. You know, over long term,

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Speaker 1: growth funds obviously give far greater returns. We call them

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Speaker 1: up the next day to have a chat to them

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Speaker 1: to say, you know, are you comfortable with that, You're

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Speaker 1: still quite young, are you comfortable to move to have

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Speaker 1: less exposure to growth assets today? And have you made

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Speaker 1: an informed decision? The response was, I had a couple

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Speaker 1: of wines, I panicked, and therefore I probably didn't make

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Speaker 1: the right decision. So thanks for sharing the information with me. Actually,

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Speaker 1: the right thing for me today is to stay in

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Speaker 1: a growth type asset.

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Speaker 2: So that sounds like a lot better than a hangover.

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Speaker 1: Yeah, that's for sure, as far greater outcomes over long time,

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Speaker 1: long term that's.

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Speaker 2: For long hanger, right, I guess. So looking at how

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Speaker 2: Pythons does that, you talk about outperforming markets by investing

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Speaker 2: in growth companies where do you start with identify some

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Speaker 2: of those growth picks.

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Speaker 1: I guess Pythons started back in two thousand and seven

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Speaker 1: where Mike Taylor actually as an eighteen year old started

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Speaker 1: making money from South by investing in growth companies and decided,

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Speaker 1: actually he'll share some of those skills with clients, so

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Speaker 1: he formed Pie Funds, and Pie Funds is all about

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Speaker 1: active investment, Understanding companies, understanding what makes companies tick, understanding

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Speaker 1: who's running companies, to make picks where we're going to

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Speaker 1: add performance.

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Speaker 2: So if you are thinking about a company where you

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Speaker 2: are looking at that situation of trying to add performance

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Speaker 2: or make an investment decision, how do you identify which

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Speaker 2: ones to go with?

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Speaker 1: I love sitting with our Australian investment team. They are

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Speaker 1: on the ground in Sydney. They are talking to companies

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Speaker 1: every single day. They're reading reports of companies every single day.

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Speaker 1: They know what's happening in those companies and they have

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Speaker 1: the air to the ground. They have the phone or

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Speaker 1: the front door of the CFO, the CEO of organizations

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Speaker 1: to try I understand what's happening in a company, who's

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Speaker 1: running that company, what management buying, isn't that company and

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Speaker 1: therefore starting to make decisions about how strong that company is,

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Speaker 1: where it's heading, and how it might be priced into

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Speaker 1: the future versus how it's priced today.

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Speaker 2: So you're talking about knowing the people. So that's a

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Speaker 2: little bit of talking to them and a little bit

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Speaker 2: of stalking, right, a little bit of looking at the results. Sorry,

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Speaker 2: probably not the way that you would phrase it, but

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Speaker 2: you actually how much of that is just one to

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Speaker 2: one gaining information about that company.

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Speaker 1: Look, I think when you're playing for growth companies and

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Speaker 1: you're playing for small cap companies and you're trying to

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Speaker 1: add value over and above the index, you really need

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Speaker 1: to be connected to those companies. So call it stalking,

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Speaker 1: But probably what i'd call is good research, good research,

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Speaker 1: quality insights, understanding where you believe the company should fundamentally

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Speaker 1: be valued versus where it's valued today, and that will

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Speaker 1: help you make a decision as to whether you should

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Speaker 1: be buying, whether you should be selling, or whether you

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Speaker 1: should be holding.

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Speaker 2: I guess you and a lot of other active fund managers, though,

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Speaker 2: are going to be chasing all of those same tips.

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Speaker 2: Is there a particular inside route that you take?

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Speaker 1: Look, I think the beauty of the team in Sydney.

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Speaker 1: Is they're on the ground with those companies, they can

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Speaker 1: knock on the door. They're in there in the time zone.

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Speaker 1: And also with the team in the UK, they're in

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Speaker 1: there in the time zone, so they know what's happening

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Speaker 1: in real time with those companies. Look, there's a big

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Speaker 1: universe out there. At PI Funds, we play to add

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Speaker 1: value in the smaller universes, in smaller caps, and that's

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Speaker 1: what's really important to be over and close to those companies.

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Speaker 2: Sure, I guess because a lot of those companies don't

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Speaker 2: necessarily get massive exposure in media, for example, or they're

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Speaker 2: not closely covered by analyst notes and the kinds of

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Speaker 2: paperwork that might be flowing around information that other investors

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Speaker 2: might get access to.

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Speaker 1: Yeah, look, I think I mean a number of research

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Speaker 1: things that our teams would be looking at absolutely broken oes,

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Speaker 1: research notes, relationships, word on the street. But that in

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Speaker 1: itself is not enough. Then they will create my models.

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Speaker 1: Then they will work on models and ask questions and

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Speaker 1: also ask those questions direct of the companies to try

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Speaker 1: and get a feel for actually is it fundamentally priced

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Speaker 1: different today to where we'll believe in the future, or

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Speaker 1: actually now is the time to sell because actually we've

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Speaker 1: seen it reach where we think it's profits are going

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Speaker 1: to get to, and let's take the gains for our investors.

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Speaker 2: I guess if we're thinking about right now and the

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Speaker 2: sort of extraordinary volatility we've seen just in the last

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Speaker 2: couple of weeks, not just stuff coming in from the

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Speaker 2: political spectrum, but just with sort of results from some

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Speaker 2: of those enormous market leaders in the US, is this

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Speaker 2: a point where the active approach is really starting to

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Speaker 2: take some risks, where you've got some opportunities but also

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Speaker 2: some big risks to consider. Yeah.

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Speaker 1: Look, I think risk management's really important around active management obviously,

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Speaker 1: But I've just jumped off call with our Aussie investment

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Speaker 1: team and they've just finished the Australian reporting season. And

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Speaker 1: in the Australian reporting season, of course all companies front

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Speaker 1: up with their result. They do it over a sort

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Speaker 1: of three to four week period of time, and there

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Speaker 1: has been the most extreme volatility within the reporting results,

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Speaker 1: with a lot of them reporting really really good results

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Speaker 1: at the beginning and a big sell off and then

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Speaker 1: prices falling quite steeply and then increasing again and adjusting.

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Speaker 1: You know, they've seen obviously that revenues have stayed with

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Speaker 1: minimal growth, but margins are increasing through really really strong

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Speaker 1: cost management. So then they're starting to think, well, what

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Speaker 1: does that mean for us? Where are the winners and

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Speaker 1: losers going to be? Where do we take the profits?

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Speaker 1: Because this volatility is just up and down at the

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Speaker 1: moment in the reporting season, and they've made some big

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Speaker 1: calls on some big companies at the right time to

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Speaker 1: take those profits. I mean, in terms of volatility around

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Speaker 1: the world. End of last year, I think everyone thought, great,

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Speaker 1: Trump's in and Trump's going to drive a lot of

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Speaker 1: value for US businesses, and the markets all started reading

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Speaker 1: into that thinking, you know what, great, We're on an

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Speaker 1: upward trajectory in the US. Obviously, over the last two months,

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Speaker 1: what we've seen is Tariff's being introduced, Tariff's not being understood,

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Speaker 1: a huge amount of noise in the US in terms

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Speaker 1: of Trump's policies coming through, and the market now readjusting

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Speaker 1: and saying, you know, it's not quite as positive as

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Speaker 1: we thought it was going to be. So, you know,

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Speaker 1: it's a really really hard time for a passive fund

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Speaker 1: to be trying to understand what's out there, Which is

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Speaker 1: the beauty of having active managers really looking understanding the

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Speaker 1: markets and making calls based on real time information. Yeah.

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Speaker 2: If I think about some of those contemporary issues, one

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Speaker 2: that's sort of blown up as this whole idea around

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Speaker 2: companies following or not following or abandoning DEI policies and

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Speaker 2: that kind of thing. That's kind of a topical issue

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Speaker 2: at the moment. We're seeing a lot of push and

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Speaker 2: pull from corporates inside the US at the moment. Apple's

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Speaker 2: been in a bit of a showdown with the White

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Speaker 2: House around that, I think, And we've also think seen

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Speaker 2: quite a lot of those ESG funds perhaps closing or

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Speaker 2: some of them some of them shutting down. And I

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Speaker 2: mean I've got politicians here that are accusing our major

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Speaker 2: banks of being woke. When you, as a fund manager

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Speaker 2: are looking at that, I mean, do you think investors

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Speaker 2: are less likely now to consider a company which doesn't

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Speaker 2: have that kind of policy or that they're they're there

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Speaker 2: that doesn't take their ESG commitments seriously or is there

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Speaker 2: still that appetite Like.

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Speaker 1: I think ESG has moved on a long way for

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Speaker 1: any company, and certainly as an active manager, we look

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Speaker 1: at ESG, we have a responsible investment policy, which means

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Speaker 1: for every company that we invest in, there have to

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Speaker 1: be certain criteria to be considered to ensure that it

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Speaker 1: meets our policy. Look, if I turn back the clock,

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Speaker 1: maybe say ten years ESG was something on the side.

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Speaker 1: SG now in today's world is actually priced into valuations

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Speaker 1: of organizations, and therefore ESG whilst you say they might

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Speaker 1: be closing down, actually ESG is actually considered in the

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Speaker 1: fundamental now of both stock picking valuations and therefore are

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Speaker 1: priced into the models.

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Speaker 2: So it's very mainstream in that it's.

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Speaker 1: Becoming far more mainstream.

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Speaker 2: Absolutely, And on the DEI stuff, that's a little too

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Speaker 2: early to tell.

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Speaker 1: Look, I think DEI is a moving feast, isn't it.

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Speaker 1: I think there is absolute evidence that DEI does support

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Speaker 1: great outcomes for businesses and there will be continuing I mean,

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Speaker 1: despite Trump's call on it. I think corporates will continue

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Speaker 1: to see the benefits. As you know, if I looked

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Speaker 1: ten years ago at ESG, that was separate. DEI will

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Speaker 1: be mainstream.

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Speaker 2: If you are looking at other themes as an investment manager,

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Speaker 2: what are you looking around and spotting there?

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Speaker 1: I guess a few things that we would look at

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Speaker 1: as an active investment manager would be undervalued stocks or

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Speaker 1: in fact overvalued stocks in terms of the decision to sell.

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Speaker 1: But let's take an undervalued stock. For example, there might

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Speaker 1: be a really well run company that has some temporary

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Speaker 1: bad news that's going to affect the share price. A

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Speaker 1: passive fund will take that bad news and it'll just

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Speaker 1: hit the index. An active manager will look at that

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Speaker 1: bad news and say, hmm, does that bad news fundamentally

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Speaker 1: change the strategic price of this company and its outlook?

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Speaker 1: Take for example, in Nvidia sold off a couple of

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Speaker 1: weeks ago on the deep seek news twenty percent. I

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Speaker 1: think drop on the day.

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Speaker 2: Yeah, massive, like a trillion dollar loss, but.

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Speaker 1: Absolutely however fundamentally quite a strong company. So a number

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Speaker 1: of active managers at that point might have gone, you

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Speaker 1: know what, we might be continuing to hold, or we

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Speaker 1: might acquire a little bit over this period of time

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Speaker 1: as we see how that deep seek news plays out.

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Speaker 2: Whereas a passive manager is just going to track whatever

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Speaker 2: is going on our adjustments accordingly, I guess.

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Speaker 1: I kind of I kind of align a passive manager

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Speaker 1: to a community football team. Everyone's going to go and

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Speaker 1: they're going to have a go. They're going to have

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Speaker 1: a play. Some will be great, some won't be so good,

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Speaker 1: you know, As opposed to an active manager, which is

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Speaker 1: more like a Premier league team, they'll be looking at

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Speaker 1: the conditions, they'll be looking at the players, they'll be

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Speaker 1: looking at the opposition. Then they'll be pulling a team

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Speaker 1: together and making sure they've got the best team on

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Speaker 1: the day for those conditions.

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Speaker 2: Premier league teams tend to come with pretty high prices

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Speaker 2: on the players, you know, and big ticket prices too.

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Speaker 2: So the fees part of all of this is something

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Speaker 2: that people often raise and say, hey, look, you're paying

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Speaker 2: a lot. Obviously it costs a lot to do all

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Speaker 2: of these run, all these models, do this research, have

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Speaker 2: these skilled professionals taking a look. So how do you

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Speaker 2: make that argument? How do you say, hey, look, it's

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Speaker 2: money well spent because that is going to come off

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Speaker 2: whatever returns that you're achieving in.

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Speaker 1: Yeah, I think first and foremost what I'd say to

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Speaker 1: any investor, be it a KEYP saver investor or a

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Speaker 1: shares investor, you shouldn't be looking at fees. You should

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Speaker 1: be looking at returns after fees. At the end of

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Speaker 1: the day, investment process is trying to grow your retirement

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Speaker 1: nest egg or your savings nest egg and therefore it'll

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Speaker 1: be the outcome of a number of things, performance, fees,

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Speaker 1: et cetera. So look at what you are getting after

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Speaker 1: fees as opposed to focusing on the fees. Yes, active

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Speaker 1: investing does attract higher fees, and that, like you say,

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Speaker 1: is due to research, analysis, frequent trading and the like.

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Speaker 1: On the other hand, passive investing doesn't because you know,

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Speaker 1: they're just simply tracking it index do.

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Speaker 2: We think we make it easy and as there are

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Speaker 2: a pretty settled format now for being able to compare

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Speaker 2: returns net of fees and so on, so that I

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Speaker 2: guess so that investors actually are looking out there or

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Speaker 2: people that are looking at a key, we save a

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Speaker 2: plan and they can literally compare across to see where

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Speaker 2: it's likely to get them.

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Speaker 1: Yeah, it's funny because I mean sorted a number of

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Speaker 1: other providers morning Star provide returns after fees, and they

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Speaker 1: are absolutely available. A lot of platforms will still, you know,

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Speaker 1: show here's your return, here's your fees, and of course

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Speaker 1: an individual goes straight to fees and they shouldn't be.

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Speaker 1: But yeah, I think look as as our investors continue

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Speaker 1: to I guess consider the final outcome and the impact

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Speaker 1: of that final outcome, then they will more and more

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Speaker 1: look at returns after fees.

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Speaker 2: Do you look at I know there are some pretty

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Speaker 2: substantial studies produced by Speva. The index versus active reports

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Speaker 2: is one that sort of seems to consistently say, hey, look,

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Speaker 2: on average, most active funds struggle to beat the market.

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Speaker 2: And they would point that up as sort of an

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Speaker 2: example of saying, hey, this is something you need to

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Speaker 2: consider with investing. These other indexes as well that would

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Speaker 2: look around and pick particular funds, some of them yours,

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Speaker 2: and particular moments where you're doing better. How do you

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Speaker 2: explain all of that information? How do you deal with

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Speaker 2: all of that?

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Speaker 1: I had a quick look this morning at the latest

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Speaker 1: KYP Saver morning Star results, and over the last one,

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Speaker 1: five and ten years, active managers have been top of

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Speaker 1: the pops in each of those categories, you.

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Speaker 2: Know, in terms of ahead of the returns above above

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Speaker 2: the rutuns passive absolutely.

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Speaker 1: So if you kind of think of it in such

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Speaker 1: a way that you know passive is going to track

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Speaker 1: down the middle, active managers are going to sit on

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Speaker 1: either side. There will be periods of course where they

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Speaker 1: gain and above the benchmark and periods where they're behind

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Speaker 1: the benchmark. But over the long term, active managers have

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Speaker 1: added more than the benchmark.

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Speaker 2: So what do you think it's particularly in the last

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Speaker 2: couple of years that that's been the case.

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Speaker 1: I mean, I think long term. Are you talking about

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Speaker 1: speavers results here? I mean it's been you know, quite

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Speaker 1: a volatile period over the last couple of years in

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Speaker 1: terms of markets and some there will be a lot

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Speaker 1: of active providers that are obviously winning in those markets

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Speaker 1: in some that aren't.

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Speaker 2: If you're thinking about the sort of time lines that

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Speaker 2: they're talking about there one year, three year, five, When

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Speaker 2: you're looking at making investments, what's long term?

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Speaker 1: Look, I mean, that's a really good question. When do

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Speaker 1: you need the money? What are you going to be

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Speaker 1: using the money for? I mean, as a twenty five

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Speaker 1: year old who's saving for their retirement, you know that,

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Speaker 1: and they'll probably take a little bit of a dip

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Speaker 1: at some point in time when they're buying their first house.

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Speaker 1: But the long term's forty five to call it sixty

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Speaker 1: five years now with increasing mortality rates, so that is

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Speaker 1: pretty long term.

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Speaker 2: You know.

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Speaker 1: More generally, I think long term investing across all of

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Speaker 1: the funds in New Zealand, you would say anything sort

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Speaker 1: of over seven to ten years is a long term?

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Speaker 2: Is that a long enough term? I'm thinking we've got

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Speaker 2: some very long term problems. Does it just get too

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Speaker 2: complicated to sort of push things out beyond that or

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Speaker 2: is it that need of money?

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Speaker 1: And well, I think this is where fun choice comes in,

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Speaker 1: you know, because anything where you're investing, anything where you're

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Speaker 1: investing for a period over ten years, you'll probably be

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Speaker 1: looking at a growth fund or a high growth fund

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Speaker 1: because that's where you will get greater returns over the

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Speaker 1: long term. And I think, you know, looking at any

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Speaker 1: shorter is really are you coming to retirement in the

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Speaker 1: next five years? Do you need the funds for family,

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Speaker 1: for property? And that's where you might dial down your

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Speaker 1: risk a little bit and have that certainty.

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Speaker 2: I guess if we're looking at the activity that you

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Speaker 2: do as an active fund manager, you're kind of testing

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Speaker 2: the market, aren't you. You're kind of discovering prices so

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Speaker 2: to some extent, then are the passive funds kind of

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Speaker 2: taking a bit of a free ride on you.

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Speaker 1: Well, I think the passive funds aren't really doing too much.

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Speaker 1: I mean, the passive funds, in my eyes, are like

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Speaker 1: a train getting from A to B on a train track.

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Speaker 1: You know. The active funds are probably more like having

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Speaker 1: a GPS in there and they're kind of going, oh,

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Speaker 1: my goodness, there's a bit of traffic here, or there's

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Speaker 1: a bit of weather here, and therefore we're going to

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Speaker 1: have to take this route to get there quicker or faster.

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Speaker 1: Whereas the train you kind of just actually that noise

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Speaker 1: in the market you're probably not making decisions on because

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Speaker 1: you are just buying the index and you're taking the

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Speaker 1: ups and downs with the index. I think one of

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Speaker 1: the bigger risks that those are impassive funds need to

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Speaker 1: consider obviously, is that you know, in periods of underperformance,

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Speaker 1: you will just take the underperformance, whereas an active manager

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Speaker 1: will be working hard to consider where the opportunities are

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Speaker 1: to beat the index in terms of that underperformance. They

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Speaker 1: might be doing that maybe because you know, they've recognized

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Speaker 1: the market trend. For example, one market trend you know

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Speaker 1: that I kind of look back in our portfolios is

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Speaker 1: around Spotify. At the beginning of COVID, you know, we

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Speaker 1: were looking at what Spotify might do where they're going

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Speaker 1: to play a place in streaming? Where are they going

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Speaker 1: to play a place in podcasts? And that's been a

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Speaker 1: fabulous investment for our portfolios. You know, through through research,

401
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Speaker 1: through insights, through foresights, I guess on what might happen

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Speaker 1: at an industry level. The other thing that an active

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Speaker 1: investor might do, you know this point around downturns, is

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Speaker 1: they might look at futures in terms of exposure to

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Speaker 1: sort of high risk sectors and they can apply, for example,

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Speaker 1: short the market via selling futures, where of course passive

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Speaker 1: and benchmark lead funds won't be able to do that.

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Speaker 2: Right. That's obviously a slightly more risky kind of derivative

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Speaker 2: that you're dealing with there, But that's the kind of

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Speaker 2: latitude that you'd have.

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Speaker 1: Absolutely yep, that you know how much cash you might

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Speaker 1: hold in periods of uncertainty, so that you can deploy

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Speaker 1: that cash quite quickly when you think there's really good

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Speaker 1: buyers to have that are going to add value to portfolios.

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Speaker 2: So haw's the cash count looking at the moment at pipe,

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Speaker 2: I think, look, I think you've got a good war chest.

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Speaker 1: No, I think I mean, I think we're probably sitting

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Speaker 1: at about ten to twenty percent in cash, and that's

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Speaker 1: available obviously for liquidity, but also to deploy where those

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Speaker 1: opportunities come up.

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Speaker 2: Like, it must be hard to filter that noise out

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Speaker 2: of the market that you would talking about there, because

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Speaker 2: there just seems to be so much going on.

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Speaker 1: It's funny. I was reading something the other day around

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Speaker 1: the noise in the market has never been greater. You know,

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Speaker 1: take America for example. In the past, decisions would be

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Speaker 1: made in the White House. They would then be well

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Speaker 1: thought about and pushed out publicly. But today decisions are

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Speaker 1: being discussed in real time like theater. Effectively, you're watching

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Speaker 1: you're watching what's happening out there. But it is really

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Speaker 1: important to get back down to the fundamentals of a

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Speaker 1: company that you're investing in, the fundamentals of a region,

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Speaker 1: or the fundamentals of a sector in terms of where

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Speaker 1: we might play and shuffle investments around in those spaces,

435
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Speaker 1: and the noise has to be filtered otherwise you kind

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Speaker 1: of drown.

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Speaker 2: Yeah, I guess if we're thinking about that big picture,

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Speaker 2: I'm thinking about something that you said before about one

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Speaker 2: of the risks with indexes just just tracking down and

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00:23:04,520 --> 00:23:07,760
Speaker 2: following down there I mean, is there that risk that

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Speaker 2: passive investing winds up inflating the value of some of

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00:23:10,520 --> 00:23:13,120
Speaker 2: those market leaders. And I'm thinking about the end said,

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00:23:13,359 --> 00:23:15,719
Speaker 2: not just the instex perhaps where you've got a company

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00:23:15,760 --> 00:23:18,600
Speaker 2: like Fisher and Pikel Healthcare that's a huge part of

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00:23:18,640 --> 00:23:20,680
Speaker 2: the market. But it's the same picture really in the

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00:23:20,760 --> 00:23:22,480
Speaker 2: United States and the S and P where you've got

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00:23:22,680 --> 00:23:27,640
Speaker 2: seven companies effectively dominating, and we're dominating, we're dominating.

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00:23:27,960 --> 00:23:30,280
Speaker 1: Not so much dominating at the moment. Yeah, Look, it

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00:23:30,680 --> 00:23:33,800
Speaker 1: is really interesting in terms of the rise of passive

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00:23:33,840 --> 00:23:37,840
Speaker 1: investing and the increase of flows going into passive vesting,

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00:23:37,920 --> 00:23:41,679
Speaker 1: which I think you know is now up to about

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00:23:41,960 --> 00:23:45,200
Speaker 1: half of all investable money around the world's going to passive.

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00:23:45,240 --> 00:23:49,840
Speaker 1: So of course that will pump up prices up within

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Speaker 1: within the index and given the demand for following the index.

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00:23:54,240 --> 00:23:56,480
Speaker 1: And again I guess I kind of again, look an

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00:23:56,520 --> 00:24:00,960
Speaker 1: example of where we might look at and we can

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00:24:00,960 --> 00:24:02,720
Speaker 1: bring it back home to New Zealand. Two, you know

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00:24:02,960 --> 00:24:04,840
Speaker 1: a couple of funds in New Zealand that you might

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00:24:04,880 --> 00:24:08,360
Speaker 1: look at and kind of go, if you've got two

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00:24:08,480 --> 00:24:14,680
Speaker 1: retirement two retirement type businesses that you're looking like a

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00:24:14,760 --> 00:24:18,359
Speaker 1: ryman's in a sumset, sitting in an index, and you're

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00:24:18,400 --> 00:24:19,880
Speaker 1: kind of going, which one are you going to go for?

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00:24:19,960 --> 00:24:23,359
Speaker 1: The index might get both. An active manager will look

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00:24:23,400 --> 00:24:25,959
Speaker 1: at and make a call on one of them, and

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00:24:26,000 --> 00:24:27,720
Speaker 1: one of them now is sort of playing at five

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00:24:27,760 --> 00:24:30,639
Speaker 1: percent above and one is playing one percent above in

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00:24:30,720 --> 00:24:33,000
Speaker 1: terms of returns over the last year. You know, it's

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00:24:33,000 --> 00:24:35,600
Speaker 1: an active management. You know, we made the right choice.

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00:24:35,640 --> 00:24:37,439
Speaker 1: We went for the one that's got five percent above,

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00:24:37,640 --> 00:24:40,919
Speaker 1: you know. But that is part of the challenge of passive.

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00:24:40,920 --> 00:24:43,720
Speaker 1: You're going to get a one and a five, which

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00:24:43,760 --> 00:24:45,639
Speaker 1: is going to give you a lower average.

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Speaker 2: What might be the risks, you think, to sum it up,

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00:24:49,040 --> 00:24:52,920
Speaker 2: that are worth considering before you take a solely passive

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00:24:52,920 --> 00:24:55,800
Speaker 2: investing approach rather than combining or looking at active.

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00:24:56,119 --> 00:24:59,840
Speaker 1: Yeah, look, I think there's probably three. I mean, passive

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00:25:00,400 --> 00:25:06,520
Speaker 1: assumes that markets are always efficient and that's not the case,

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00:25:07,359 --> 00:25:11,119
Speaker 1: you know. So one would be no risk management. A

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00:25:11,160 --> 00:25:16,040
Speaker 1: passive fund won't adjust your exposure if a sector or

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00:25:16,040 --> 00:25:20,400
Speaker 1: a company becomes overvalued or risky. Number two is there's

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00:25:20,400 --> 00:25:25,280
Speaker 1: missed opportunities. Passive funds can't capitalize on the miss pricing

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00:25:25,720 --> 00:25:29,040
Speaker 1: or emerging trends before they're widely recognized. And that's what

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00:25:29,200 --> 00:25:34,520
Speaker 1: our experts are there to do for our investors. Understand companies,

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00:25:34,680 --> 00:25:40,840
Speaker 1: understand markets, understand miss pricing, make those investments, understand when

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00:25:40,880 --> 00:25:44,919
Speaker 1: to take profits. And I think, look, if a passive

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00:25:44,920 --> 00:25:48,360
Speaker 1: fun tracks an index that's heavily weighted towards underperforming companies,

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00:25:48,760 --> 00:25:54,320
Speaker 1: the investors of course may experience, you know, undervalued returns

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00:25:55,240 --> 00:25:58,840
Speaker 1: for them. So look one percent, I think one percent

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00:25:58,920 --> 00:26:01,800
Speaker 1: increase in performance for a key we saver investor at

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00:26:01,840 --> 00:26:05,360
Speaker 1: the age of twenty five will contribute two hundred thousand

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00:26:05,520 --> 00:26:09,440
Speaker 1: dollars to their retirement nest egg when they're sixty five

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00:26:09,520 --> 00:26:13,639
Speaker 1: years old. You know, that's a big difference in terms

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00:26:13,640 --> 00:26:17,000
Speaker 1: of return. So if you can outperform the industry, if

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00:26:17,000 --> 00:26:20,359
Speaker 1: you can outperform benchmarks over the long term by one percent,

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00:26:21,000 --> 00:26:24,280
Speaker 1: you're adding two hundred thousand dollars to your retirement saving

496
00:26:24,320 --> 00:26:27,639
Speaker 1: nest egg. And that retirement saving nest egg is for

497
00:26:27,680 --> 00:26:29,640
Speaker 1: you to pay yourself pocket money when no one else

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00:26:29,720 --> 00:26:30,159
Speaker 1: is paying you.

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Speaker 2: It's a great place to leave it. I think, thanks

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00:26:33,720 --> 00:26:36,560
Speaker 2: very much, Jenna Cool, thank you Gas, and thank you

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00:26:36,640 --> 00:26:40,000
Speaker 2: whether you're listening on Apple or Spotify, or iHeart or

502
00:26:40,000 --> 00:26:42,720
Speaker 2: watching on YouTube. Make sure you lock in so you

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00:26:42,760 --> 00:26:45,960
Speaker 2: get that next episode that gives you the passive perspective

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00:26:46,000 --> 00:26:49,080
Speaker 2: to balance what we've heard about active investing today and

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00:26:49,160 --> 00:26:51,320
Speaker 2: all those other great insights you'll get from the shared

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Speaker 2: lunch episodes. Quid with two. That's us for now,