As the 2023/2024 financial year draws to a close, investors are grappling with several key themes that have emerged over the past 12 months. In the coming weeks, the team at InvestSense will be digging deeper into these trends to provide financial advisers with insights and guidance.

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The Polarisation of Passive Vs Active

One of the most striking developments has been the polarisation between active and passive investing. While passive funds, especially those tracking the tech-heavy NASDAQ, have delivered stellar returns of up to 30%, the average active manager has struggled to keep pace. This underperformance may be due to active managers pushing against lofty valuations, but the question remains: is this the right approach? We will be speaking with fund managers to understand their positioning and assess whether fundamentals-based investing is prudent in the current environment.

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Performance Challenges in Industry Funds

Another trend that has caught our attention is the lagging performance of industry funds. Directly held illiquid assets, combined with the impact of higher interest rates, have dragged on returns for the past 18 months. We will be unpacking the various factors contributing to this underperformance and exploring the implications for investors.

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Choosing Stocks: Stability or High Growth?

Volatility has also been a dominant theme, particularly in the tech sector. While stocks like NVIDIA have led the market higher, they have also exhibited significant volatility. Over the past three months, US stocks have shown standard deviations of 18-20%, implying that investors should brace for substantial swings in any given year. This raises a crucial question for investors: do you opt for cheaper, less volatile stocks or stick with high-growth quality names that have proven resilient? We will be delving into this valuation conundrum in the coming weeks.

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Impact of Passive Investing on Market Dynamics

Finally, we will be examining the relationship between passive ownership and market dynamics. A growing body of research suggests that the increasing prevalence of passive investing is having an impact on flows and market technicals. We believe this is an area that warrants further exploration.