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THE INVESTOR
Viewpoint
TyeBousada,
FoundingPartner, EdgePointWealthManagement
A look at EdgePoint’s long-term plans, how to identify an active fund manager
from a closet tracker and why the difference is vitally important to investors
THE INVESTOR CENTRE
There has been a long debate
about active versus passive
investment management;
that is, actively trying to pick
investments compared to
tracking a given index such
as the FTSE 100. What’s your
opinion?
Most active managers have been
underperforming now for a material
length of time. If you compare how
they have done against the S&P 500
index, for example, more than half
have underperformed since 2003
1
.
It is hard for actives to outperform
passives consistently over time, yet
active managers have higher fees.
We believe that the typical active
manager can be lucky over two to
three years but they find it hard to
sustain that over a longer period of
five to 10 years. St. James’s Place has
been rigorously selective, choosing
only those active managers who are
not simply riding short-term luck.
Withmanymarkets at or near
all-timehighs, is it a good time
tobe investing?
We believe the environment is always
right to buy growth and not pay for it,
if you can find those opportunities.
Since the 2007-08 recession, growth
has been even harder to come by.
What creates the opportunity to buy
growth for free?The answer is
volatility. Downside volatility in
share prices makes some market
participants fearful, often selling
their businesses for less than their
worth.This provides the buyer with
the opportunity to get future growth
at a discount or, in some cases, not
pay for that growth.
DoesEdgePoint haveadirect
stake inall this?
Very much so.The 58 partners at
EdgePoint have around 160 million
Canadian dollars (about £91 million)
of their own money invested in
the portfolios.
Muchhas beenwrittenabout
so-called ‘closet trackers’.What
are they?
A closet tracker is an active manager
who does not want to deviate too
much from the benchmark they follow.
Studies show that in some countries
almost half of so-called active
managers are in fact closet index-
trackers
2
.This can be seen from the
difference in a fund’s holdings in
comparison to its benchmark.
EdgePoint’s holdings in the St. James’s
Place portfolio show a 97% variance
from the MSCIWorld Index, marking
us out as a truly active manager.
Canyougiveexamples of your
keyholdings andexplainhow
thesealignwithyour long-term
investment objectives?
Aena is the national airports operator
in Spain and the Spanish government
decided on an initial public offering
on the stock market about two years
ago.At the time, the Spanish economy
was not doing well but Aena is the
world’s largest airport operator in
terms of world passenger numbers
3
.
We grasped that once passenger
numbers started to pick up, costs
would be only marginally higher but
profits would climb dramatically,
which is what has happened – a
classic example of not paying for
future growth in today’s price.
Just as exciting is Live Nation
Entertainment Inc, created by a
merger of Live Nation with
Ticketmaster. Music artists have
THE FUND MANAGER VIEWPOINT