Active or passive: Marc van Maarle (Index People)
This article was originally written in Dutch. This is an English translation
By Marc van Maarle, Senior Institutioneel Vermogensbeheerder, Index People
How should you deal with concentration risks in passive portfolios?
‘Risk diversification is the only free lunch in investing. For our organisation, a high degree of diversification is necessary to mitigate concentration risks. This applies not only to individual equities, but also to regions and (sub-)asset classes. That is why the passive preference proposition for our clients is based on a regional distribution of equity investments based on the distribution of global GDP as published by the IMF. The automatic consequence of this is that America accounts for approximately 35%, while a larger allocation to emerging countries and Europe is the logical consequence. We also add small-cap equities to achieve further diversification.
Risk diversification is the only “free lunch” in investing.
To what extent are passive strategies appropriate in a volatile, inflation-sensitive or geopolitically turbulent market?
‘We structure passive client portfolios based on risk appetite combined with the client's investment horizon. Not only are the investment solutions used passively managed, but the policy is also passive. Risk profiles are monitored based on rules-based rebalancing of client portfolios, excluding emotions and expectations. Since we cannot predict financial markets, our sole objective is to keep investment portfolios in line with clients' desired risk profiles. An additional advantage of this approach is that it requires profit-taking when there are significant increases and additional purchases when there are declines.'
