Reducing MERs with index funds is not the best solution to volatile investment markets.
The purpose of index funds and ETF’s are being misused by placing too many of the growth assets of the portfolio into these options. It will only be apparent to investors when they retire as to what price they have paid while accumulating by being in low MER funds.
“Index funds are exposing investors to 100% of the volatility of the equity markets. With such a volatile outlook, investors would be much better served by having a portion of their equity investments in strategies that have the potential to soften the blow in a falling market”. Investors should be made aware that the cost savings resulting from investing in these passive strategies will be insignificant in the event of a severe market correction” said Russel Pillemer, Chief Executive Officer, Pengana Capital.
Financial advisors should also be investing their clients into equity strategies that are designed to generate positive returns irrespective of movements in equity markets. Examples of these strategies are equity market neutral long short and special event strategies.
Pengana is finding strong demand from independent groups who have moved quickly to restructure their approved product lists and models in order to include these strategies in the face of increasing uncertainty and volatility in Global and Australian equity markets.