Investment strategy - balancing passives with actives?

Flatulentoldgoat

So what's the general consensus on 'balancing' portfolios that mix both passives and actives? Obviously that depends the instruments involved but I have gone for the 'higher risk' side of my actives. BG, SMT, etc.

I'm roughly weighted as follows. Active 40% Passive 60%.

Passives can be risky too, but VWRL + iShares MSCI is my hedge against the potential volatility/fees of the actives.

Thoughts? Perhaps I should've swung my distribution the other way round. Or done it differently altogether.

Linton

Define your objectives first.  Then decide what underlying investments you need to meet your objectives.  Finally pick the funds that together give you the underlying investments.  Whether those funds happen to be active or passive is a minor consideration.  For some areas active are best, in others you could reasonably go passive.

Passives are not inherently less risky that active.

JohnWinder

Yes, 'active are best' or were best? Which are some of the areas in which active WILL be best?

dunstonh

So what's the general consensus on 'balancing' portfolios that mix both passives and actives?

All quite normal and hybrid is a popular method.   Being biased to one type or the other is not ideal. Being open minded and picking from the best of both is more sensible.

Passives can be risky too, but VWRL + iShares MSCI is my hedge against the potential volatility/fees of the actives.

In general, there is no risk difference between passive and managed in terms of how they are managed. Passive is an investment style. Managed is an investment style.     The risk difference is on the underlying assets.

Thoughts? Perhaps I should've swung my distribution the other way round. Or done it differently altogether.  

Our lowest risk portfolios are over 90% passive.  As we move up the risk scale more actives are used.  70% passive at medium risk through to 30% passive at highest risk.  Those are not targeted figures. They are just what they are.     Indeed, the amount in passive may drop as we are switching corporate bonds from passive to managed (not that there is much allocated to corp bonds at this time).

ChilliBob

I do this too, and intend to do it more. I think you need to think where actives and passives can perform best. For example beating the US market with actives is cited as being very difficult. UK small and mid caps do well served with active.

And yeah passive can of course be riskier than active, capital tearing trust is active, and L&G Robotics is passive  

Thrugelmir

JohnWinder said:

Yes, 'active are best' or were best? Which are some of the areas in which active WILL be best?

Areas of the market where passive funds don't operate. They do exist. 

Linton

JohnWinder said:

Yes, 'active are best' or were best? Which are some of the areas in which active WILL be best?

I am afraid that in investing there are no "WILLS" merely potentials and possibilities.  However I think I can safely say that there are no areas where passive WILL be the best, unless you define best to be whatever a passive fund does.

AnotherJoe

I have two SIPPs one which i regard as passive and one active, in that i just leave the 'passive' alone, the other is a mish mash of stuff that would give Dunston conniptions.

The "passive" SIPP is roughly 50/50 a global index fund and an active global smaller companies fund. Roughly because theres no rebalancing, if the smaller outpaces the Global I'll let it run.

csgohan4

I tend to use Active for my satellite funds such as EM/ Small caps/ Tech e.t.c
Then passive for my go to global tracker
personal preference tbh. 

MaxiRobriguez

I'm mostly passive in my pension, with active funds in European small cap and Emerging markets where there's more opportunity due to fewer eyes on it, but that's it. 

Personally feel like active on dev/large cap is a mugs game. You'd have to go far and wide to find someone on the planet who doesn't know what Amazon are doing.

Linton

MaxiRobriguez said:

I'm mostly passive in my pension, with active funds in European small cap and Emerging markets where there's more opportunity due to fewer eyes on it, but that's it. 

Personally feel like active on dev/large cap is a mugs game. You'd have to go far and wide to find someone on the planet who doesn't know what Amazon are doing.

I use active large company funds to be able to chose the underlying asset allocations that fit in with the rest of the portfolio.  Some active funds can be quite different to the closest appropriate index - eg in sector %s or value vs growth.