Active managers see opportunities created by passive funds

Active managers see opportunities created by passive funds

That’s the case for Nicholas Bagnall, founder and chief investment officer at the Te Ahumairangi fund, which invests solely in global equities.

“It can create opportunities to invest,” Bagnall says, explaining that stocks that exit the index tend to out-perform while those that replace such stocks in the index tend to underperform.

“There can be exaggerated price moves for stocks that are in danger of being out of the index or in danger of being included in the index.”

If one of those stocks reports a poor result, the resulting share price reaction can be particularly bad, and the Te Ahumairangi fund tends to do a significant amount of investing at that margin.