CAF Investment Account

BEYOND THE BENCHMARK: ACTIVE OR PASSIVE INVESTMENT MANAGEMENT?

The choice between active and passive managed funds isn't always clear-cut, but there are some things you can consider to ensure that your approach meets your charity’s needs.

MATCH YOUR INVESTMENT APPROACH TO YOUR OBJECTIVES

The most important thing is to choose the style that's closely aligned to your charity's own investment objectives and risk appetite.

WHAT IS AN ACTIVELY MANAGED FUND?

With an actively managed fund, the focus is on outperforming a specific benchmark, or index. Rather than investing in the same stocks that feature in that index, active managers scrutinise company, industry and market developments (such as earnings reports, new product launches and political events) to identify stocks with the greatest potential to generate a profit.

They can also adjust the structure of their investment portfolios to include different asset classes and sectors based on what their research reveals.

THE PROS AND CONS OF ACTIVELY MANAGED FUNDS

Actively managed funds are typically more volatile, so may be better suited to investors with a higher tolerance of risk. Conversely, these funds often have greater potential for opportunity for profit than their passively managed peers.

Many active funds aim to generate big gains quickly, which means they can have a hefty exposure to volatile stocks and low-rated bonds - exposure that increases the odds of both profit and loss. It's also important to recognise that the higher fees that usually come with active management can make a significant dent in profits.

WHAT IS A PASSIVELY MANAGED FUND?

A passively managed fund aims to achieve the same returns as a specific benchmark, rather than outperforming it. Index funds are one type of passively managed fund that invests in the exact same stocks or bonds that appear in the index. An index fund based on the S&P 500, therefore, typically owns all the stocks listed on that index.

THE PROS AND CONS OF PASSIVELY MANAGED FUNDS

Passively managed funds tend to be a lower-risk investment option than actively managed funds, although returns are usually slower to materialise in comparison.

Because a low number of trades are carried out each year, passively managed funds typically have lower fees. But when it comes to index funds, don't forget that the fund matches the performance of the index - in good times and in bad - so passive funds can really suffer when the market suffers.

BENEFIT FROM THE BEST OF BOTH WORLDS

So should you opt for the lower fees, lower risk and lower returns that typically come with passively managed funds? Or should you strive for the best return on your investments by taking on higher fees and higher risks in exchange for the higher-return potential of actively managed funds? The good news is that you don't have to choose one or the other - you can combine the two approaches by investing with a multi-manager.

MULTI-MANAGERS COMBINE BOTH INVESTMENT STYLES

Managed by Octopus Investments, the CAF Managed Portfolio Service is underpinned by funds that bring together the best of active and passive investment approaches. Using passively managed funds as the core of the portfolio, Octopus only invests in active fund managers when it believes they will outperform the passive alternatives.

It focuses on identifying managers with the experience, investment knowledge and stock selection skills that give them the potential to deliver consistent outperformance over time, across a range of market and economic conditions.


Disclaimer: The CAF Managed Portfolio Service is currently operated outside of the CAF Investment Account. If you chose to invest in the CAF Managed Portfolio Service you will not be able to manage these investments online within the CAF Investment Account.

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Important information

The value of investments may fall as well as rise. You may not get back the full amount that you originally invested.

Past performance is not a guide to future performance.

There is no guarantee about the level of capital gains or income that will be generated.

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Disclaimer

The CAF Investment Account is offered to you by CAF Financial Solutions Limited (CFSL) and is operated and supplied by Interactive Investor Trading Limited. Interactive Investor Trading Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: Standon House, 21 Mansell Street, London E1 8AA.

CAF Financial Solutions Limited (CFSL) is authorised and regulated by the Financial Conduct Authority. Registered office is 25 Kings Hill Avenue, Kings Hill, West Malling, Kent ME19 4TA. CFSL is a subsidiary of Charities Aid Foundation (registered charity number 268369).


Charities Aid Foundation © 2016 | Registered Charity Number 268369
25 Kings Hill Avenue, Kings Hill, West Malling, Kent ME19 4TA Telephone: 03000 123 000
10 St. Bride Street, London EC4A 4AD Telephone: 03000 123 000