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Index is not the enemy but a tool for MFDs/RIAs to do their job for clients, said Deborah at Cafemutual Passives Conference 2022 (CPC 2022). She believes that passive funds make a lot of business sense for MFDs/RIAs as in the long run lower cost can translate into a better return for clients.
Deborah shared with us three simple tips to incorporate passives in your practice:
Doing asset allocation through passives
Passives can be useful asset allocation tool as it influences 90% of investment returns. Also, asset allocation through passives can help your clients gain exposure to the right asset classes and the right mix of countries or sectors as it come with low switching cost. (Most passive funds do not have any load or low exit loads)
Consider international and thematic investment through passives
You can use ETFs to invest overseas and in sectors, themes, ESG, fixed income and commodities. Sector rotation with an index product makes a lot more sense than through actives. Also, you can use ETF to move from one strategy to another easily.
Do smart picking through passives
MFDs/RIAs can explore smart beta products. Since smart beta strategies pick factors that over the long run are academically shown to deliver better performance than market cap, many believe smart beta to be in the middle of active and index.
Here is a glimpse of Deborah’s session at CPC 2022. To get access to the entire session, write to us at newsdesk@cafemutual.com.
