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Blending active and passive for short-term gains

Short-term trading between active and passive funds can be lucrative, but investors need to do the groundwork
June 14, 2018

Passive funds such as exchange-traded funds (ETFs) can be good core portfolio holdings and an effective way to access markets such as the US where active managers struggle to outperform. However, taking a more active approach to using passive funds could generate better returns.

Such an approach involves switching between active and passive funds depending on the situation in the market. Active fund managers sometimes describe the investment environment as a 'stockpickers' market'. This generally means that different sectors are not correlated and as markets are not being driven by momentum, stock fundamentals matter more.

Conversely, when most shares are rising active managers can struggle to beat the market, meaning that passive funds could be both cheaper and make higher returns.

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