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Active fee must be justified

Retirees, including those in an SMSF, needed to question and rationalise the level of fees when it came to active management as it was an issue receiving more attention, according to State Street Global Advisors (SSGA).

“There have been flows all over the active versus passive spectrum, but what’s more apparent to us is that investors are becoming more aware of how their active fee dollar is getting spent,” SSGA Asia-Pacific head of active quantitative equity Olivia Engel told selfmanagedsuper.

“Being sure when they’re paying for active funds that they’re getting something which is truly different from a passive offering, that’s ultimately what’s important.”

Engel said SMSF investors’ willingness to pay for expertise was the critical question when it came to active management.

“SSGA does both active and passive management, and both have their place in different scenarios depending on where fee budgets want to be spent and what the objectives are of the investor,” she pointed out.

“When it comes to active management, you need to make sure that when you’re paying an active fee that you’re really getting an active exposure because investors shouldn’t be paying high fees and simply getting an exposure that’s like the benchmark.

“If the benchmark has concentrated exposure in the banks, for example, if an active manager doesn’t like the banks, then why do they own them in the portfolio?”

The SSGA Australian Equity Fund, for example, only held stocks that it wanted to own, she revealed.

“Nothing about the benchmark drives our decision to hold a stock,” she said.

“We don’t like the energy sector at the moment so our weight in energy is zero.”

She said that message was resonating with SMSF retirees.

“When they see what we’re able to deliver with our approach – we’ve been able to achieve really strong returns in the equity market as well as cushioning against downside risk when markets have big drawdowns,” she said.

“We’ve been able to reduce volatility by around one-third, but still remain very strong in outperforming the cap-weighted index.”

The SSGA Australian Equity Fund, launched in September 2009, was recently added to Asgard eWrap.

It is also available directly with a minimum investment of $25,000.

The fund also last month topped the Morningstar table of 296 large-cap Australian equities funds over a five-year time frame, returning 10.7 per cent versus 4.68 per cent for the S&P/ASX 300 Index over the same period.

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