When it comes to investing, many people focus on things like performance, fees, or choosing the right provider. But there is another important question worth asking: do you know how your money is being invested?
Whether you're invested in KiwiSaver or Managed Funds, understanding how investment decisions are made can help you feel more informed and confident about where your money is invested.
Active and passive investing: what's the difference?
The word “active” can give the impression that an investment manager is constantly buying and selling. But active investing is really about how much a fund differs from the market index it is measured against.
A passive fund generally aims to follow an index by investing in all or most of the companies it contains. The goal is to mirror the performance of that index as closely as possible.
An active fund takes a more selective approach. Its investment team researches companies and decides which ones it believes are worth investing in and which ones to leave out. The more these choices differ from the index, the more active the fund is.
Both approaches are widely used, but they can result in very different portfolios.
Focus on what you're invested in
Active and passive investing are different approaches, but the label only tells part of the story. What’s important is understanding the investments held within a fund.
One of the traditional benefits of passive investing has been spreading your money across a wide range of companies. However, investing in hundreds of companies does not always mean your money is spread evenly.
In recent years, the 10 largest companies have made up around 40% of the S&P 500. Many of these are large technology companies that have benefited from the growth of artificial intelligence. Their size gives them considerable influence over how the S&P 500 performs.
This means that if one of these companies rises or falls significantly, it can have a noticeable effect on the overall result.
The key takeaway? Don't just look at whether a fund is active or passive. Take the time to understand what it invests in and whether that approach is right for you.
Our approach
At Fisher Funds, we're active investors.
Our investment team spends time meeting company management teams, visiting businesses and conducting in-depth research to understand how companies operate and where they see future growth opportunities. This helps the team decide which companies to invest in and which ones to leave out.
It's a hands-on approach that goes beyond simply tracking an index and helps inform the investment decisions we make on behalf of our clients.
It's an approach we've backed for more than 25 years across both KiwiSaver and Managed Funds.
Take the next step
Want to learn more? Explore our KiwiSaver and Managed Funds fact sheets to see how our funds are invested, or speak with a financial adviser about the investment approach that's right for you.
*Past performance is not a reliable indicator of future performance. Returns are not guaranteed. Please read the relevant Product Disclosure Statement before making an investment decision.
