Active management continues to play a key role in building resilient portfolios and responding to changing market dynamics.
| Over the past decade, the investment industry has witnessed a relentless compression in management fees, driven primarily by the growth of passive investing. Exchange-traded funds (ETFs) and index trackers have democratised access to diversified portfolios at fractions of a percentage point in annual cost. Recent announcements by leading global providers - cutting headline fees to single-digit basis points - have reignited debate about the role of active management, particularly for offshore building blocks within the global portfolios of South Africans. |
 |
 | For investors, the argument seems intuitive: if one can gain exposure to global markets for next to nothing, why pay more? Yet as with many apparent ‘no-brainers,’ the reality is more complex.
The cheapest exposure is not always the most appropriate exposure. In this article we briefly discuss why active management remains a relevant investment approach when managing money. |
Before assessing active versus passive, we should ask a more fundamental question: what benchmark are we trying to capture or outperform?
Every investment process begins with a benchmark. It defines the opportunity set, the geographic and sectoral exposure; and the implicit risk-return profile. Only once the benchmark has been chosen does the method of implementation - active or passive - become relevant.
Take global equities as an example. Many South African investors compare passive and active solutions by referencing the S&P 500 Index because it dominated both headlines and returns in recent years. However, the S&P 500 Index represents only about 60% of global market capitalisation and excludes mid-and small-cap stocks, as well as the vast emerging market universe. The MSCI ACWI IMI, by contrast, includes almost 9 000 companies across 23 developed and 24 emerging markets, covering approximately 99% of the investable global equity universe.
Over longer periods, that broader exposure has historically generated higher absolute returns and better risk-adjusted performance than the narrower MSCI World Index (large- and mid-cap developed market companies only) or simplistic blends such as ‘70% S&P 500 + 30% Rest of World.’ The choice of benchmark therefore has a material effect on outcomes. Investors who confine themselves to narrow indices may enjoy temporary strong returns when those segments lead, as US mega-caps have done recently, but they risk structural under-exposure when global leadership rotates.
It is worth noting the often-quoted SPIVA scorecard - highlighting percentage of US mutual funds beating the benchmark is low — fails to recognise the opportunity set in the global space. By way of an example, last year was an opportune time for active global managers to underweight the US in a weak dollar environment. Similarly, global managers could generate excess returns by allocating to outperforming European defence companies at the expense of their US counterparts. We believe the ability to pick shares within a global sector without regional constraints is an advantage. Global core managers delivered double the success rates of the equivalent US core funds.
Replication costs rise with index complexity. A plain-vanilla US large-cap ETF may charge 3bps; but a truly global, all-cap fund — incorporating smaller companies, emerging markets, multiple currencies and trading venues — typically costs 15-20 bps. The higher costs reflect rebalancing expenses, liquidity differences, withholding taxes and the operational challenge of tracking thousands of securities. Consequently, the comparison often made between a 3bp US index fund and an actively managed global fund is misleading - essentially an apples-to-oranges comparison. A fair comparison would be between a global active fund and a global passive benchmark such as the ACWI IMI, which already carries a higher replication cost. If that broader benchmark outperforms simpler ones by 50bps per annum (a reasonable long-term estimate), then even after accounting for the 15-20 bps higher passive cost, the net benefit to the investor is roughly +30bps.
In addition, risks are not comparable. ETFs often engage in scrip lending to reduce fees. The income generated in these programmes offsets some of the costs. Equivalent active management vehicles might not be engaging in this and while the risks are not significant, the reality is passive could be taking on risk to reduce cost.
The broader point is that ‘low cost’ does not necessarily equal ‘low total cost’ or ‘high efficiency.’ The investor’s objective is not to minimise fees in isolation but to maximise net risk-adjusted return after all costs. The passive revolution has been invaluable in highlighting costs but focusing on them exclusively risks overlooking where real value is created.
The case for active management rests not on marketing rhetoric but on how markets work. Prices are set by humans and their algorithms, in environments characterised by information asymmetry, behavioural bias, and structural frictions. These imperfections create the very conditions that active managers exploit.
Even in liquid developed markets, dispersion between the best and worstperforming stocks remains wide. In recent years, the spread between the top and bottom deciles of global equities exceeded 80% annually, a fertile ground for skilled stock-pickers. Dispersion is even higher in smaller-cap, frontier and emerging markets, where research coverage is thin and capital flows are irregular. Here, information advantages and disciplined research can translate directly into alpha.
Passive investors, by definition, buy more of yesterday’s winners as they grow in index weight and sell more of yesterday’s losers as they shrink. This momentum-driven mechanic can lead to crowding in over-valued sectors. A very concentrated market lends itself to passive management. Conversely, as the market broadens out, active managers can exploit such flows and position themselves contrarily when valuations disconnect from fundamentals. The last decade favoured passive in the sense that it was the most concentrated market we have seen in the past century as shown over the page1. The graph shows (in turquoise) the market concentration of the top 10 stocks in the S&P 500. Today, the top 10 shares account for approximately 40% of the S&P 500 market capitalisation and 33% of its profits. If this continues, passive will likely outperform. By contrast, active could deliver significant excess returns if the operating environment changes.
1 https://www.ft.com/content/38c3ccd8-3aa0-4dbb-a832-00177c40996c
Active management allows discretion in managing liquidity, concentration risk and valuation extremes. Passive vehicles must hold the benchmark regardless of valuation, governance, or geopolitical risk. Skilled active managers can trim exposures ahead of regime shifts, rotate across styles and regions, and manage position-sizing to protect capital in downturns. This agility has historically delivered superior downside protection during bear markets, an often-overlooked contributor to long-term compounding.
Active managers can also exploit long-term themes and structural inefficiencies: sustainability transitions, demographic change, technological disruption, or governance reform in emerging economies. Benchmarks are slow to adapt; active managers can move early.
Sceptics correctly point out that, on average, active managers underperform after fees. The comparison of active vs passive is, however, often flawed. If one includes the same distribution costs embedded in active vehicles in their passive counterparts, then the narrative from the analysis would differ materially - many passive funds lag their benchmarks if the same costs are included. We believe the solution lies not in abandoning active management but in selecting the right active managers.
| That is precisely where we believe our competitive
edge lies. Our multi-manager and discretionary platform has 25+ years of experience in identifying and combining outperforming managers across regions and styles. We have the resources, data and governance to separate skill from luck - something few advisers or DFMs can do at scale. Our process emphasises persistence of alpha, cultural alignment, capacity discipline and a deep understanding of how each manager generates return.
The results speak for themselves: consistent outperformance of 2% p.a. across our global active mandates since inception, dated back to 19982. This success demonstrates that active management can add value, provided selection is disciplined, diversified, and continuously monitored. 2 Peer survey (31/01/2026): Morningstar Global Large-Cap Blend Equity Category |  |
Define the benchmark: decide which index best reflects the intended investment universe and client objective.
Assess the cost: compare the true cost of passive replication against potential active value-add, including implementation and trading costs.
Select for skill: allocate to active managers only where we have evidence of repeatable alpha, robust process and alignment of interests.
This disciplined approach ensures that every building block earns its place on a net-offee basis, aligning with the principle of fiduciary duty to the end investor.
Our value proposition rests on three pillars:
|  |
 |
Active management, when executed with discipline, remains indispensable. It identifies opportunities, manages risk dynamically and integrates portfolio decisions in ways that passive products simply cannot.
The conversation around fees is important and overdue. Investors should always be conscious of costs, and passive funds have done the industry a service by forcing transparency. |
Yet cost is only one variable in the investment equation. The end goal is not the cheapest portfolio, but the most effective one - the combination of exposures, skills and governance that delivers the highest probability of meeting client objectives over time.