The ability to manage the downside when markets fall is limited in passive investments, according to a small cap boutique manager.
Active managers are better at limiting downside at times when markets go down than passive investors, according to boutique small cap manager, Prime Value Asset Management.
According to the firm, the ability to avoid the big losers was equally as important as picking big winners when it came to selecting stocks.
“It’s seductive to put too much focus on selecting big winners, but avoiding poor performers is often more influential on returns,” Prime Value’s portfolio manager, Richard Ivers, said.
“It’s that old rule – if you lose 50 per cent of your capital, you need a 100 per cent return just to get back to where you were.”
Ivers stressed that passive strategies looked good at times when markets were stable and rising, but they were often exposed during corrections with a long-lasting impact on performance.
The small/micro cap Prime Value Emerging Opportunities Fund – Class A outperformed the Emerging Companies Accumulation Index by 20 per cent since joining Prime Value six months ago.
Since inception in October 2015, the fund has returned 11.3 per cent per annum, the company said.
By Oksana Patron, Investment Centre Money Management