WEBVTT - Active or passive investing? Part 1: Active 0:00:00.160 --> 0:00:02.960 An active manager will look at bad news and say, hmm, 0:00:03.560 --> 0:00:07.200 does that bad news fundamentally change the strategic price of 0:00:07.280 --> 0:00:12.320 this company. What we've seen is Tariff's being introduced, Tariff's 0:00:12.360 --> 0:00:15.800 not being understood, a huge amount of noise in the US, 0:00:15.920 --> 0:00:19.239 and the market now readjusting and saying, you know, it's 0:00:19.280 --> 0:00:21.520 not quite as positive as we thought it was going 0:00:21.560 --> 0:00:23.800 to be. Well, it's stalking, but probably what I'd call 0:00:23.960 --> 0:00:28.600 is good research, good research, quality insights, understanding where you 0:00:28.760 --> 0:00:32.199 believe the company should fundamentally be valued versus where it's 0:00:32.280 --> 0:00:32.960 valued today. 0:00:35.840 --> 0:00:40.560 Curakoto, Welcome to Shared Lunch. I'm Garth Bray. Active investing, 0:00:40.640 --> 0:00:43.040 picking what to buy, sell or hold. It can be 0:00:43.080 --> 0:00:46.879 an experience or rewarding journey, but not for the faint hearted. 0:00:47.120 --> 0:00:49.600 At the same time, it's easier than ever to opt 0:00:49.640 --> 0:00:53.120 in to exchange traded funds ETFs and adopt a more 0:00:53.159 --> 0:00:57.440 passive strategy. So we're talking to investment strategists and experts 0:00:57.520 --> 0:01:01.680 about those two approaches, active and passive. And today we're 0:01:01.760 --> 0:01:04.920 joined by the CEO of Pie Funds, Anna Marie Lockyer. 0:01:05.319 --> 0:01:08.679 We'll be talking in an upcoming episode to a passive specialist, 0:01:08.959 --> 0:01:11.440 and it's important to think of these as two halves 0:01:11.480 --> 0:01:14.160 of the same game. But before we get into all 0:01:14.200 --> 0:01:17.400 of that, here some important information you should always consider 0:01:17.440 --> 0:01:18.080 when investing. 0:01:18.200 --> 0:01:20.760 Investing involves the risk you might lose the money you 0:01:20.800 --> 0:01:24.080 start with. We recommend talking to a licensed financial advisor. 0:01:24.800 --> 0:01:28.640 We also recommend reading product disclosure documents before deciding to invest. 0:01:28.880 --> 0:01:31.280 Everything you're about to see and here is current at 0:01:31.280 --> 0:01:32.080 the time of recording. 0:01:32.120 --> 0:01:33.759 Welcome, Hi, Welcome to shared lunch. 0:01:33.840 --> 0:01:34.759 Thank you for having me Gar. 0:01:35.120 --> 0:01:37.920 Look, when we talk about active investing, is it literally 0:01:38.000 --> 0:01:39.280 just the art of picking winners? 0:01:40.080 --> 0:01:43.800 I mean, active investing is a strategy. We're an investor 0:01:44.319 --> 0:01:48.040 or a company like Pie Funds. An active investment manager 0:01:48.400 --> 0:01:52.000 will make deliberate decisions to buy, sell, or hold a stock. 0:01:52.640 --> 0:01:55.560 They'll make those decisions in an attempt to outperform the 0:01:55.560 --> 0:01:59.920 market or a specific benchmark, and they may do that 0:02:00.040 --> 0:02:06.800 based on research, market trends, valuations, or experience. Passive investing, 0:02:06.880 --> 0:02:10.600 on the other hand, is in contrast, the goal really 0:02:10.680 --> 0:02:13.760 is just to match the market returns, like tracking an 0:02:13.800 --> 0:02:17.240 index that might be the NZX fifty, that might be 0:02:17.280 --> 0:02:21.400 the S and P five hundred. Investors there will typically 0:02:21.440 --> 0:02:24.920 just use ETFs or index funds which have a lower 0:02:25.000 --> 0:02:29.760 fee to aim to match market performance. I was I 0:02:29.840 --> 0:02:33.080 overheard a call actually this morning with our investment experts 0:02:34.080 --> 0:02:37.440 who said the DAX, which is the German index of 0:02:37.480 --> 0:02:42.560 their top companies, had had a fifteen percent increase over 0:02:42.600 --> 0:02:46.760 the last year. Fifty eight percent of that fifteen percent 0:02:46.840 --> 0:02:51.079 increase came from one stock. So if an investor is 0:02:51.080 --> 0:02:52.919 sitting in a passive fund, they are going to get 0:02:52.919 --> 0:02:57.560 the fifteen percent increase. If an investors sitting in an 0:02:57.639 --> 0:03:01.360 active fund and their active manager has researched the companies 0:03:01.400 --> 0:03:06.080 within that index and chosen SAP, which had contributed fifty 0:03:06.120 --> 0:03:10.079 eight percent, they would overweight SAP, for example. 0:03:11.480 --> 0:03:13.079 And that's where you get the difference. 0:03:13.200 --> 0:03:16.680 And that is where active managers truly aim to add 0:03:17.240 --> 0:03:19.000 performance over the long term. 0:03:19.240 --> 0:03:22.160 Is that hard to explain to some clients, I suppose 0:03:22.240 --> 0:03:24.720 because they might be a little bit nervous and thinking, oh, gosh, 0:03:24.760 --> 0:03:27.000 it's a lot of volatility. Can I trust these people 0:03:27.040 --> 0:03:28.880 to write it out for me? 0:03:29.280 --> 0:03:31.840 Yeah, I think. I mean, a passive investor will get volatility. 0:03:32.680 --> 0:03:36.360 An active investor may get more or less volatility, depending 0:03:36.360 --> 0:03:41.880 on how the composition of the portfolio is playing out. Again, 0:03:41.920 --> 0:03:44.760 if we're thinking about kipsaver investors and the need to 0:03:45.600 --> 0:03:48.880 accept volatility, it is really important they think about the 0:03:48.920 --> 0:03:52.000 long term. Recently, there was a little bit of volatility 0:03:52.000 --> 0:03:54.520 in the market and that would have been experienced by 0:03:54.600 --> 0:04:00.560 both passive and active investors, and one of our clients 0:04:02.120 --> 0:04:04.560 change the profile of their fun choice from a growth 0:04:04.640 --> 0:04:08.200 fund to a conservative fund. You know, over long term, 0:04:08.240 --> 0:04:12.960 growth funds obviously give far greater returns. We call them 0:04:13.040 --> 0:04:14.520 up the next day to have a chat to them 0:04:14.600 --> 0:04:16.920 to say, you know, are you comfortable with that, You're 0:04:16.960 --> 0:04:19.560 still quite young, are you comfortable to move to have 0:04:21.040 --> 0:04:24.440 less exposure to growth assets today? And have you made 0:04:24.440 --> 0:04:27.520 an informed decision? The response was, I had a couple 0:04:27.560 --> 0:04:32.520 of wines, I panicked, and therefore I probably didn't make 0:04:32.560 --> 0:04:36.080 the right decision. So thanks for sharing the information with me. Actually, 0:04:36.160 --> 0:04:38.120 the right thing for me today is to stay in 0:04:38.120 --> 0:04:39.760 a growth type asset. 0:04:40.800 --> 0:04:42.799 So that sounds like a lot better than a hangover. 0:04:43.000 --> 0:04:47.159 Yeah, that's for sure, as far greater outcomes over long time, 0:04:47.279 --> 0:04:48.040 long term that's. 0:04:47.920 --> 0:04:53.320 For long hanger, right, I guess. So looking at how 0:04:53.360 --> 0:04:56.640 Pythons does that, you talk about outperforming markets by investing 0:04:56.720 --> 0:05:00.320 in growth companies where do you start with identify some 0:05:00.360 --> 0:05:01.240 of those growth picks. 0:05:01.680 --> 0:05:04.600 I guess Pythons started back in two thousand and seven 0:05:04.640 --> 0:05:07.680 where Mike Taylor actually as an eighteen year old started 0:05:07.680 --> 0:05:11.799 making money from South by investing in growth companies and decided, 0:05:11.839 --> 0:05:16.040 actually he'll share some of those skills with clients, so 0:05:16.080 --> 0:05:18.760 he formed Pie Funds, and Pie Funds is all about 0:05:20.520 --> 0:05:26.000 active investment, Understanding companies, understanding what makes companies tick, understanding 0:05:26.040 --> 0:05:29.159 who's running companies, to make picks where we're going to 0:05:29.160 --> 0:05:30.000 add performance. 0:05:30.880 --> 0:05:33.240 So if you are thinking about a company where you 0:05:33.279 --> 0:05:35.640 are looking at that situation of trying to add performance 0:05:36.440 --> 0:05:39.520 or make an investment decision, how do you identify which 0:05:39.560 --> 0:05:40.280 ones to go with? 0:05:40.680 --> 0:05:44.040 I love sitting with our Australian investment team. They are 0:05:44.040 --> 0:05:46.800 on the ground in Sydney. They are talking to companies 0:05:46.839 --> 0:05:50.680 every single day. They're reading reports of companies every single day. 0:05:51.080 --> 0:05:53.159 They know what's happening in those companies and they have 0:05:53.200 --> 0:05:55.919 the air to the ground. They have the phone or 0:05:55.960 --> 0:05:59.080 the front door of the CFO, the CEO of organizations 0:05:59.640 --> 0:06:02.240 to try I understand what's happening in a company, who's 0:06:02.320 --> 0:06:06.080 running that company, what management buying, isn't that company and 0:06:06.120 --> 0:06:09.040 therefore starting to make decisions about how strong that company is, 0:06:09.160 --> 0:06:12.159 where it's heading, and how it might be priced into 0:06:12.160 --> 0:06:14.080 the future versus how it's priced today. 0:06:15.160 --> 0:06:17.480 So you're talking about knowing the people. So that's a 0:06:17.520 --> 0:06:19.039 little bit of talking to them and a little bit 0:06:19.080 --> 0:06:21.520 of stalking, right, a little bit of looking at the results. Sorry, 0:06:21.520 --> 0:06:23.400 probably not the way that you would phrase it, but 0:06:23.720 --> 0:06:25.800 you actually how much of that is just one to 0:06:25.880 --> 0:06:28.440 one gaining information about that company. 0:06:28.839 --> 0:06:31.159 Look, I think when you're playing for growth companies and 0:06:31.160 --> 0:06:33.520 you're playing for small cap companies and you're trying to 0:06:33.520 --> 0:06:36.400 add value over and above the index, you really need 0:06:36.440 --> 0:06:40.719 to be connected to those companies. So call it stalking, 0:06:40.760 --> 0:06:43.800 But probably what i'd call is good research, good research, 0:06:43.960 --> 0:06:48.640 quality insights, understanding where you believe the company should fundamentally 0:06:48.640 --> 0:06:51.800 be valued versus where it's valued today, and that will 0:06:51.800 --> 0:06:53.520 help you make a decision as to whether you should 0:06:53.560 --> 0:06:56.000 be buying, whether you should be selling, or whether you 0:06:56.000 --> 0:06:56.680 should be holding. 0:06:57.120 --> 0:07:00.200 I guess you and a lot of other active fund managers, though, 0:07:00.240 --> 0:07:02.600 are going to be chasing all of those same tips. 0:07:03.640 --> 0:07:05.599 Is there a particular inside route that you take? 0:07:06.360 --> 0:07:08.839 Look, I think the beauty of the team in Sydney. 0:07:08.960 --> 0:07:11.720 Is they're on the ground with those companies, they can 0:07:11.800 --> 0:07:14.320 knock on the door. They're in there in the time zone. 0:07:14.320 --> 0:07:15.960 And also with the team in the UK, they're in 0:07:15.960 --> 0:07:17.640 there in the time zone, so they know what's happening 0:07:17.640 --> 0:07:20.320 in real time with those companies. Look, there's a big 0:07:20.400 --> 0:07:24.120 universe out there. At PI Funds, we play to add 0:07:24.200 --> 0:07:26.800 value in the smaller universes, in smaller caps, and that's 0:07:26.800 --> 0:07:31.960 what's really important to be over and close to those companies. 0:07:32.320 --> 0:07:34.720 Sure, I guess because a lot of those companies don't 0:07:34.760 --> 0:07:37.840 necessarily get massive exposure in media, for example, or they're 0:07:37.840 --> 0:07:40.920 not closely covered by analyst notes and the kinds of 0:07:40.960 --> 0:07:43.679 paperwork that might be flowing around information that other investors 0:07:43.720 --> 0:07:44.480 might get access to. 0:07:44.680 --> 0:07:47.280 Yeah, look, I think I mean a number of research 0:07:47.400 --> 0:07:51.360 things that our teams would be looking at absolutely broken oes, 0:07:51.760 --> 0:07:57.240 research notes, relationships, word on the street. But that in 0:07:57.280 --> 0:08:00.360 itself is not enough. Then they will create my models. 0:08:00.840 --> 0:08:03.520 Then they will work on models and ask questions and 0:08:03.560 --> 0:08:07.320 also ask those questions direct of the companies to try 0:08:07.320 --> 0:08:11.000 and get a feel for actually is it fundamentally priced 0:08:11.760 --> 0:08:14.000 different today to where we'll believe in the future, or 0:08:14.040 --> 0:08:16.440 actually now is the time to sell because actually we've 0:08:16.440 --> 0:08:18.160 seen it reach where we think it's profits are going 0:08:18.240 --> 0:08:21.440 to get to, and let's take the gains for our investors. 0:08:22.000 --> 0:08:23.800 I guess if we're thinking about right now and the 0:08:23.920 --> 0:08:26.560 sort of extraordinary volatility we've seen just in the last 0:08:26.600 --> 0:08:29.640 couple of weeks, not just stuff coming in from the 0:08:29.680 --> 0:08:32.960 political spectrum, but just with sort of results from some 0:08:33.000 --> 0:08:37.160 of those enormous market leaders in the US, is this 0:08:37.280 --> 0:08:40.679 a point where the active approach is really starting to 0:08:40.760 --> 0:08:43.200 take some risks, where you've got some opportunities but also 0:08:43.280 --> 0:08:45.080 some big risks to consider. Yeah. 0:08:45.080 --> 0:08:48.840 Look, I think risk management's really important around active management obviously, 0:08:48.920 --> 0:08:51.640 But I've just jumped off call with our Aussie investment 0:08:51.640 --> 0:08:55.480 team and they've just finished the Australian reporting season. And 0:08:55.520 --> 0:08:59.360 in the Australian reporting season, of course all companies front 0:08:59.440 --> 0:09:01.360 up with their result. They do it over a sort 0:09:01.360 --> 0:09:04.280 of three to four week period of time, and there 0:09:04.280 --> 0:09:07.600 has been the most extreme volatility within the reporting results, 0:09:08.000 --> 0:09:10.800 with a lot of them reporting really really good results 0:09:10.840 --> 0:09:14.600 at the beginning and a big sell off and then 0:09:14.679 --> 0:09:17.840 prices falling quite steeply and then increasing again and adjusting. 0:09:18.320 --> 0:09:22.120 You know, they've seen obviously that revenues have stayed with 0:09:23.000 --> 0:09:26.079 minimal growth, but margins are increasing through really really strong 0:09:26.120 --> 0:09:29.400 cost management. So then they're starting to think, well, what 0:09:29.440 --> 0:09:31.240 does that mean for us? Where are the winners and 0:09:31.280 --> 0:09:33.400 losers going to be? Where do we take the profits? 0:09:33.720 --> 0:09:35.880 Because this volatility is just up and down at the 0:09:35.920 --> 0:09:39.120 moment in the reporting season, and they've made some big 0:09:39.160 --> 0:09:43.160 calls on some big companies at the right time to 0:09:43.240 --> 0:09:46.360 take those profits. I mean, in terms of volatility around 0:09:46.360 --> 0:09:49.560 the world. End of last year, I think everyone thought, great, 0:09:49.600 --> 0:09:51.760 Trump's in and Trump's going to drive a lot of 0:09:52.000 --> 0:09:56.160 value for US businesses, and the markets all started reading 0:09:56.160 --> 0:09:57.920 into that thinking, you know what, great, We're on an 0:09:58.000 --> 0:10:01.640 upward trajectory in the US. Obviously, over the last two months, 0:10:01.640 --> 0:10:07.640 what we've seen is Tariff's being introduced, Tariff's not being understood, 0:10:08.320 --> 0:10:10.720 a huge amount of noise in the US in terms 0:10:10.760 --> 0:10:17.920 of Trump's policies coming through, and the market now readjusting 0:10:18.120 --> 0:10:20.480 and saying, you know, it's not quite as positive as 0:10:20.520 --> 0:10:22.600 we thought it was going to be. So, you know, 0:10:23.120 --> 0:10:26.360 it's a really really hard time for a passive fund 0:10:26.920 --> 0:10:29.000 to be trying to understand what's out there, Which is 0:10:29.000 --> 0:10:32.640 the beauty of having active managers really looking understanding the 0:10:32.679 --> 0:10:37.160 markets and making calls based on real time information. Yeah. 0:10:37.200 --> 0:10:39.160 If I think about some of those contemporary issues, one 0:10:39.200 --> 0:10:41.640 that's sort of blown up as this whole idea around 0:10:41.640 --> 0:10:46.320 companies following or not following or abandoning DEI policies and 0:10:46.400 --> 0:10:48.600 that kind of thing. That's kind of a topical issue 0:10:48.600 --> 0:10:51.040 at the moment. We're seeing a lot of push and 0:10:51.080 --> 0:10:53.560 pull from corporates inside the US at the moment. Apple's 0:10:53.559 --> 0:10:54.920 been in a bit of a showdown with the White 0:10:54.920 --> 0:10:57.400 House around that, I think, And we've also think seen 0:10:57.440 --> 0:11:00.880 quite a lot of those ESG funds perhaps closing or 0:11:01.480 --> 0:11:03.719 some of them some of them shutting down. And I 0:11:03.760 --> 0:11:06.280 mean I've got politicians here that are accusing our major 0:11:06.280 --> 0:11:11.040 banks of being woke. When you, as a fund manager 0:11:11.080 --> 0:11:13.040 are looking at that, I mean, do you think investors 0:11:13.040 --> 0:11:16.560 are less likely now to consider a company which doesn't 0:11:16.600 --> 0:11:19.040 have that kind of policy or that they're they're there 0:11:19.679 --> 0:11:22.280 that doesn't take their ESG commitments seriously or is there 0:11:22.360 --> 0:11:24.040 still that appetite Like. 0:11:24.040 --> 0:11:26.520 I think ESG has moved on a long way for 0:11:27.000 --> 0:11:29.600 any company, and certainly as an active manager, we look 0:11:29.800 --> 0:11:33.480 at ESG, we have a responsible investment policy, which means 0:11:33.480 --> 0:11:36.400 for every company that we invest in, there have to 0:11:36.400 --> 0:11:39.560 be certain criteria to be considered to ensure that it 0:11:39.600 --> 0:11:43.400 meets our policy. Look, if I turn back the clock, 0:11:43.520 --> 0:11:48.160 maybe say ten years ESG was something on the side. 0:11:49.000 --> 0:11:52.319 SG now in today's world is actually priced into valuations 0:11:52.360 --> 0:11:56.600 of organizations, and therefore ESG whilst you say they might 0:11:56.600 --> 0:11:59.360 be closing down, actually ESG is actually considered in the 0:11:59.400 --> 0:12:03.280 fundamental now of both stock picking valuations and therefore are 0:12:03.320 --> 0:12:04.480 priced into the models. 0:12:04.679 --> 0:12:06.480 So it's very mainstream in that it's. 0:12:06.280 --> 0:12:07.480 Becoming far more mainstream. 0:12:07.480 --> 0:12:10.880 Absolutely, And on the DEI stuff, that's a little too 0:12:10.920 --> 0:12:11.559 early to tell. 0:12:11.640 --> 0:12:13.880 Look, I think DEI is a moving feast, isn't it. 0:12:13.920 --> 0:12:18.480 I think there is absolute evidence that DEI does support 0:12:18.480 --> 0:12:23.920 great outcomes for businesses and there will be continuing I mean, 0:12:23.920 --> 0:12:27.520 despite Trump's call on it. I think corporates will continue 0:12:27.559 --> 0:12:29.880 to see the benefits. As you know, if I looked 0:12:29.880 --> 0:12:33.719 ten years ago at ESG, that was separate. DEI will 0:12:33.720 --> 0:12:34.600 be mainstream. 0:12:34.960 --> 0:12:37.720 If you are looking at other themes as an investment manager, 0:12:38.040 --> 0:12:40.800 what are you looking around and spotting there? 0:12:41.240 --> 0:12:43.000 I guess a few things that we would look at 0:12:43.040 --> 0:12:47.760 as an active investment manager would be undervalued stocks or 0:12:47.760 --> 0:12:52.320 in fact overvalued stocks in terms of the decision to sell. 0:12:53.280 --> 0:12:56.400 But let's take an undervalued stock. For example, there might 0:12:56.480 --> 0:12:59.400 be a really well run company that has some temporary 0:12:59.679 --> 0:13:03.440 bad news that's going to affect the share price. A 0:13:03.480 --> 0:13:06.600 passive fund will take that bad news and it'll just 0:13:06.640 --> 0:13:09.079 hit the index. An active manager will look at that 0:13:09.160 --> 0:13:13.360 bad news and say, hmm, does that bad news fundamentally 0:13:13.480 --> 0:13:16.840 change the strategic price of this company and its outlook? 0:13:17.280 --> 0:13:20.920 Take for example, in Nvidia sold off a couple of 0:13:20.920 --> 0:13:25.600 weeks ago on the deep seek news twenty percent. I 0:13:25.640 --> 0:13:27.800 think drop on the day. 0:13:27.960 --> 0:13:29.720 Yeah, massive, like a trillion dollar loss, but. 0:13:29.679 --> 0:13:33.000 Absolutely however fundamentally quite a strong company. So a number 0:13:33.000 --> 0:13:35.120 of active managers at that point might have gone, you 0:13:35.160 --> 0:13:38.200 know what, we might be continuing to hold, or we 0:13:38.280 --> 0:13:40.760 might acquire a little bit over this period of time 0:13:40.880 --> 0:13:43.720 as we see how that deep seek news plays out. 0:13:44.920 --> 0:13:47.160 Whereas a passive manager is just going to track whatever 0:13:47.280 --> 0:13:49.360 is going on our adjustments accordingly, I guess. 0:13:49.240 --> 0:13:54.600 I kind of I kind of align a passive manager 0:13:54.679 --> 0:13:57.679 to a community football team. Everyone's going to go and 0:13:57.720 --> 0:13:58.959 they're going to have a go. They're going to have 0:13:59.000 --> 0:14:01.200 a play. Some will be great, some won't be so good, 0:14:01.760 --> 0:14:03.840 you know, As opposed to an active manager, which is 0:14:03.880 --> 0:14:07.000 more like a Premier league team, they'll be looking at 0:14:07.040 --> 0:14:09.160 the conditions, they'll be looking at the players, they'll be 0:14:09.200 --> 0:14:12.360 looking at the opposition. Then they'll be pulling a team 0:14:12.400 --> 0:14:14.280 together and making sure they've got the best team on 0:14:14.320 --> 0:14:16.080 the day for those conditions. 0:14:16.840 --> 0:14:19.880 Premier league teams tend to come with pretty high prices 0:14:19.920 --> 0:14:23.120 on the players, you know, and big ticket prices too. 0:14:23.560 --> 0:14:25.560 So the fees part of all of this is something 0:14:25.600 --> 0:14:27.600 that people often raise and say, hey, look, you're paying 0:14:27.680 --> 0:14:30.440 a lot. Obviously it costs a lot to do all 0:14:30.480 --> 0:14:33.960 of these run, all these models, do this research, have 0:14:34.120 --> 0:14:37.800 these skilled professionals taking a look. So how do you 0:14:37.880 --> 0:14:39.920 make that argument? How do you say, hey, look, it's 0:14:39.960 --> 0:14:41.760 money well spent because that is going to come off 0:14:41.800 --> 0:14:43.480 whatever returns that you're achieving in. 0:14:43.680 --> 0:14:45.680 Yeah, I think first and foremost what I'd say to 0:14:45.720 --> 0:14:49.040 any investor, be it a KEYP saver investor or a 0:14:49.120 --> 0:14:52.880 shares investor, you shouldn't be looking at fees. You should 0:14:52.880 --> 0:14:55.240 be looking at returns after fees. At the end of 0:14:55.280 --> 0:14:58.880 the day, investment process is trying to grow your retirement 0:14:58.920 --> 0:15:01.880 nest egg or your savings nest egg and therefore it'll 0:15:01.920 --> 0:15:04.960 be the outcome of a number of things, performance, fees, 0:15:05.200 --> 0:15:08.880 et cetera. So look at what you are getting after 0:15:08.920 --> 0:15:12.040 fees as opposed to focusing on the fees. Yes, active 0:15:12.080 --> 0:15:15.600 investing does attract higher fees, and that, like you say, 0:15:15.720 --> 0:15:21.160 is due to research, analysis, frequent trading and the like. 0:15:22.200 --> 0:15:25.600 On the other hand, passive investing doesn't because you know, 0:15:25.640 --> 0:15:27.720 they're just simply tracking it index do. 0:15:27.800 --> 0:15:29.480 We think we make it easy and as there are 0:15:29.480 --> 0:15:31.760 a pretty settled format now for being able to compare 0:15:31.840 --> 0:15:35.240 returns net of fees and so on, so that I 0:15:35.320 --> 0:15:37.480 guess so that investors actually are looking out there or 0:15:37.480 --> 0:15:39.000 people that are looking at a key, we save a 0:15:39.080 --> 0:15:42.000 plan and they can literally compare across to see where 0:15:42.000 --> 0:15:42.920 it's likely to get them. 0:15:43.000 --> 0:15:45.520 Yeah, it's funny because I mean sorted a number of 0:15:45.560 --> 0:15:49.680 other providers morning Star provide returns after fees, and they 0:15:49.680 --> 0:15:53.520 are absolutely available. A lot of platforms will still, you know, 0:15:53.600 --> 0:15:56.360 show here's your return, here's your fees, and of course 0:15:56.520 --> 0:16:00.440 an individual goes straight to fees and they shouldn't be. 0:16:00.480 --> 0:16:05.080 But yeah, I think look as as our investors continue 0:16:05.120 --> 0:16:10.440 to I guess consider the final outcome and the impact 0:16:10.480 --> 0:16:13.440 of that final outcome, then they will more and more 0:16:13.520 --> 0:16:15.160 look at returns after fees. 0:16:15.400 --> 0:16:18.080 Do you look at I know there are some pretty 0:16:18.120 --> 0:16:23.400 substantial studies produced by Speva. The index versus active reports 0:16:23.680 --> 0:16:26.720 is one that sort of seems to consistently say, hey, look, 0:16:27.840 --> 0:16:31.680 on average, most active funds struggle to beat the market. 0:16:32.840 --> 0:16:34.920 And they would point that up as sort of an 0:16:34.920 --> 0:16:36.400 example of saying, hey, this is something you need to 0:16:36.440 --> 0:16:39.200 consider with investing. These other indexes as well that would 0:16:39.200 --> 0:16:42.840 look around and pick particular funds, some of them yours, 0:16:42.960 --> 0:16:47.080 and particular moments where you're doing better. How do you 0:16:47.120 --> 0:16:49.240 explain all of that information? How do you deal with 0:16:49.280 --> 0:16:49.680 all of that? 0:16:49.760 --> 0:16:51.640 I had a quick look this morning at the latest 0:16:51.760 --> 0:16:55.280 KYP Saver morning Star results, and over the last one, 0:16:55.600 --> 0:16:58.120 five and ten years, active managers have been top of 0:16:58.160 --> 0:17:02.200 the pops in each of those categories, you. 0:17:02.160 --> 0:17:05.720 Know, in terms of ahead of the returns above above 0:17:05.760 --> 0:17:08.119 the rutuns passive absolutely. 0:17:08.160 --> 0:17:09.840 So if you kind of think of it in such 0:17:09.840 --> 0:17:12.080 a way that you know passive is going to track 0:17:12.280 --> 0:17:15.280 down the middle, active managers are going to sit on 0:17:15.320 --> 0:17:18.080 either side. There will be periods of course where they 0:17:18.320 --> 0:17:21.080 gain and above the benchmark and periods where they're behind 0:17:21.080 --> 0:17:24.719 the benchmark. But over the long term, active managers have 0:17:25.520 --> 0:17:27.280 added more than the benchmark. 0:17:28.320 --> 0:17:30.160 So what do you think it's particularly in the last 0:17:30.200 --> 0:17:32.320 couple of years that that's been the case. 0:17:33.840 --> 0:17:36.000 I mean, I think long term. Are you talking about 0:17:36.000 --> 0:17:41.000 speavers results here? I mean it's been you know, quite 0:17:41.000 --> 0:17:42.800 a volatile period over the last couple of years in 0:17:42.880 --> 0:17:47.600 terms of markets and some there will be a lot 0:17:47.600 --> 0:17:50.080 of active providers that are obviously winning in those markets 0:17:50.119 --> 0:17:50.919 in some that aren't. 0:17:52.040 --> 0:17:53.879 If you're thinking about the sort of time lines that 0:17:53.880 --> 0:17:56.240 they're talking about there one year, three year, five, When 0:17:56.240 --> 0:17:59.080 you're looking at making investments, what's long term? 0:18:00.160 --> 0:18:02.800 Look, I mean, that's a really good question. When do 0:18:02.840 --> 0:18:04.000 you need the money? What are you going to be 0:18:04.080 --> 0:18:06.400 using the money for? I mean, as a twenty five 0:18:07.080 --> 0:18:10.159 year old who's saving for their retirement, you know that, 0:18:10.320 --> 0:18:12.120 and they'll probably take a little bit of a dip 0:18:12.160 --> 0:18:14.080 at some point in time when they're buying their first house. 0:18:14.119 --> 0:18:17.760 But the long term's forty five to call it sixty 0:18:17.800 --> 0:18:22.280 five years now with increasing mortality rates, so that is 0:18:22.320 --> 0:18:24.320 pretty long term. 0:18:24.800 --> 0:18:25.040 You know. 0:18:25.400 --> 0:18:28.560 More generally, I think long term investing across all of 0:18:28.560 --> 0:18:30.680 the funds in New Zealand, you would say anything sort 0:18:30.680 --> 0:18:34.400 of over seven to ten years is a long term? 0:18:34.640 --> 0:18:36.320 Is that a long enough term? I'm thinking we've got 0:18:36.400 --> 0:18:38.560 some very long term problems. Does it just get too 0:18:38.600 --> 0:18:40.720 complicated to sort of push things out beyond that or 0:18:40.760 --> 0:18:41.879 is it that need of money? 0:18:41.880 --> 0:18:44.600 And well, I think this is where fun choice comes in, 0:18:45.680 --> 0:18:48.440 you know, because anything where you're investing, anything where you're 0:18:48.440 --> 0:18:50.480 investing for a period over ten years, you'll probably be 0:18:50.520 --> 0:18:52.399 looking at a growth fund or a high growth fund 0:18:52.920 --> 0:18:56.439 because that's where you will get greater returns over the 0:18:56.480 --> 0:18:59.880 long term. And I think, you know, looking at any 0:18:59.880 --> 0:19:02.520 shorter is really are you coming to retirement in the 0:19:02.520 --> 0:19:05.320 next five years? Do you need the funds for family, 0:19:05.440 --> 0:19:09.840 for property? And that's where you might dial down your 0:19:09.920 --> 0:19:13.280 risk a little bit and have that certainty. 0:19:14.880 --> 0:19:18.399 I guess if we're looking at the activity that you 0:19:18.440 --> 0:19:22.280 do as an active fund manager, you're kind of testing 0:19:22.280 --> 0:19:26.200 the market, aren't you. You're kind of discovering prices so 0:19:27.080 --> 0:19:29.840 to some extent, then are the passive funds kind of 0:19:29.840 --> 0:19:31.040 taking a bit of a free ride on you. 0:19:31.640 --> 0:19:33.960 Well, I think the passive funds aren't really doing too much. 0:19:34.080 --> 0:19:36.239 I mean, the passive funds, in my eyes, are like 0:19:36.760 --> 0:19:39.000 a train getting from A to B on a train track. 0:19:39.359 --> 0:19:41.360 You know. The active funds are probably more like having 0:19:41.359 --> 0:19:43.719 a GPS in there and they're kind of going, oh, 0:19:43.800 --> 0:19:45.560 my goodness, there's a bit of traffic here, or there's 0:19:45.560 --> 0:19:47.199 a bit of weather here, and therefore we're going to 0:19:47.200 --> 0:19:49.639 have to take this route to get there quicker or faster. 0:19:50.520 --> 0:19:53.240 Whereas the train you kind of just actually that noise 0:19:53.280 --> 0:19:55.920 in the market you're probably not making decisions on because 0:19:55.960 --> 0:19:58.359 you are just buying the index and you're taking the 0:19:58.440 --> 0:20:01.439 ups and downs with the index. I think one of 0:20:01.480 --> 0:20:05.159 the bigger risks that those are impassive funds need to 0:20:05.200 --> 0:20:09.960 consider obviously, is that you know, in periods of underperformance, 0:20:10.440 --> 0:20:14.920 you will just take the underperformance, whereas an active manager 0:20:14.960 --> 0:20:18.240 will be working hard to consider where the opportunities are 0:20:18.680 --> 0:20:22.679 to beat the index in terms of that underperformance. They 0:20:22.800 --> 0:20:26.080 might be doing that maybe because you know, they've recognized 0:20:26.119 --> 0:20:29.679 the market trend. For example, one market trend you know 0:20:29.720 --> 0:20:32.080 that I kind of look back in our portfolios is 0:20:32.119 --> 0:20:36.600 around Spotify. At the beginning of COVID, you know, we 0:20:36.600 --> 0:20:39.359 were looking at what Spotify might do where they're going 0:20:39.440 --> 0:20:42.560 to play a place in streaming? Where are they going 0:20:42.600 --> 0:20:45.199 to play a place in podcasts? And that's been a 0:20:45.200 --> 0:20:50.320 fabulous investment for our portfolios. You know, through through research, 0:20:50.400 --> 0:20:53.639