In recent years the discussion has heated up about whether active or passive investing is the way forward. We believe that a mix between the two is the right answer.
Principally, all exposure that the Mosaic Global Fund has in liquid assets or the so-called beta exposure will use ETF’s for Cardea. This saves our clients’ waste amounts of money (1.2-1.6% per annum) compared to using high- cost actively managed funds that frequently underperform. This cost savings will automatically benefit everyone investing with Cardea. There might be times when we include a manager that we feel can add some real value to the portfolio and more often than not that includes a manager investing in less- researched emerging markets.
We want to point out that we do not use ETF’s on, for example, commodities where, e.g. the monthly costs involved in rolling commodities contracts are too large. We do not use ETF’s for exposure to the alternative investment space where we firmly believe that there are hedge funds and managed futures investment teams that surely can produce alpha and add value above their benchmarks for which we are prepared to pay. This is when we look to include well-established hedge funds and managed futures managers that have proven track records and where we feel comfortable with all aspects of their investment process, risk management governance and so on.
Expanding further on the reasoning for the use of passive investments is that we are guaranteeing that Cardea will capture the market returns or the so-called risk premium, which we discussed under Investment Foundation No. 1, in the most cost-efficient way. We also make sure that we, over longer periods, will achieve top quartile returns in that asset class since research over the last 50 years has proven that only around 10-20% of all active fund managers consistently outperform their benchmarks and we will, by using ETF’s and investing in the index or the market, belong in that group.