Building a range of portfolios that combine the best of passive and active management boils down to finding the most active, most contrarian managers out there to avoid replicating the passive index exposure that’s built in.
One of the first things that becomes apparent when building a diversified long-term growth portfolio that offers the ‘best of both worlds’ is the need to find really disciplined active managers whose approach delivers significantly different results from the main market indices already being passively tracked within the portfolio.
If you fail to do this, you risk creating a beast that combines super low-cost tracker funds with not-so-low cost ‘closet tracker’ funds. This kind of ‘hybrid’ would no doubt fall at the first fence with regulators, advisers and their clients.
Because there are few passive approaches to speak of in the alternatives space, a robust ‘hybrid’ multi-asset portfolio will, by necessity, need to focus on actively-managed strategies here. But by including the right combination of active and passive mandates in its equity and fixed-income portfolios, it can still achieve worthwhile levels of diversification and growth potential for significantly lower costs than a conventional, actively managed portfolio.