Combining active investing with passive and smart beta strategies can be a highly effective way to construct a portfolio that mitigates risk while also targeting outperformance.

In a recent webinar hosted by CoreShares, Florbela Yates, head of Momentum Investment Consulting, shared her approach to blending different strategies into a diversified portfolio.

Passive investment products such as exchange-traded funds (ETFs) have surged in popularity in recent years, partly because they minimise costs while delivering market-related returns, and because most fund managers struggle to outperform them consistently. In South Africa, the index-tracker industry is growing at around 18% a year.

However, there is certainly still a place for research-intensive active stock selection, and for hybrid approaches, such as smart beta. Active and passive investment strategies are not mutually exclusive, but rather complementary.

Yates explained on the webinar that active investment managers aim to generate ‘alpha’ for their clients – or outperformance relative to a benchmark. While only a small percentage of managers are able to achieve this consistently, some highly skilled ones can.

Where there is potential to outperform the market – for instance, there are opportunities on the JSE for savvy stock selectors to deliver alpha – then it makes sense to back active managers, or even smart beta funds. Smart beta products are essentially indices with an active twist – they target specific styles or factors that can yield outperformance. Whereas active managers rely on their own research to screen assets, smart beta strategies target objective themes or criteria, such as value stocks, and charge fees that are between passive and active funds.

On the other hand, Yates says, some segments of the market are often best left to passive funds that minimise fees while delivering returns which are closely linked to underlying benchmarks.

In offshore fixed income markets, for example, outperformance after fees can be extremely difficult and it is often preferable to employ passive funds.

The process

As a discretionary fund manager, Momentum Investment Consulting targets specific outcomes for clients. This could be inflation plus 3 percentage points, for instance.

Each client will have a specific time horizon and appetite for risk, and their desired outcomes need to take those into account. For shorter time periods, it is usually best to manage downside risk, whereas a longer time horizon allows for greater risk, because risk assets tend to outperform over the long term.

The next step, Yates says, is strategic asset allocation – determining the percentage allocations towards equities, property, fixed income and other asset classes.

Then, within each asset class, one needs to identify where it makes sense to back active managers, low-cost passive funds, or smart beta strategies that target one or more themes, or factors.

In its local equities portfolios, Momentum Investment Consulting uses a blend of active managers, passives that offer diversification and market-related returns, and multi-factor smart beta strategies – relying on specialists in each area.

For its offshore allocations, the firm uses products such as the CoreShares MSCI All Country World Index, which provides exposure to both developed and emerging markets.

The end result is a multi-asset, multi-strategy and multi-manager portfolio tailored for the client’s specific needs.

We invite you to watch this on-demand webinar to explore these concepts further:

Featuring Overview



Florbela Yates

Head of Investment Consulting and Advisory at Momentum Investment Consulting
Florbela joined Momentum Investment Consulting (MIC) in January 2017 as Head of MIC and is responsible for Momentum Retail’s advisory business. She has a BCom (Economics, Business Finance, Marketing and Tax) degree and is a certified financial planner (CFP). She began her career as a consultant with Alexander Forbes in the health care division. She spent six years there before transferring to Investment Solutions as a senior marketing executive. After 13 years with the group, she joined RMB International as their Head of Institutional Business in SA. She then joined STANLIB Multi-Manager where she was involved in growing institutional assets, product development and institutional reporting. It was at STANLIB that she branched into the retail investment space as an investment marketing specialist. She then spent three years with Hollard Investments in their DFM team.


Gareth Stobie

Managing Director at CoreShares Investment Managers
Gareth is the managing director of CoreShares - a leading South African passive investment management business, and has led the business from inception. CoreShares manages a number of index funds and ETFs, and is the appointed manager of the BCI, Efficient Select range – a contemporary range of low-cost balance funds utilising index strategies. CoreShares follows an Evidence-Based Investment (EBI) philosophy. Gareth has an MBA from Wits Business School and has over 18 years' financial services experience across structured finance, investment management and banking.

INSIGHTS & ANSWERS: Blending active & passive allocations in a portfolio

Learning outcomes:

  • Examine how including passive allocations benefits a portfolio, with a spotlight on offshore allocations in particular
  • Receive unique insights into the mechanics behind MIC’s portfolio construction process that blends passive and active allocations together
  • Engage in a live Q&A discussion with industry leaders

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Your Passport to Passive is a series of exclusive webinars which take an in-depth look at the pros and cons of passive investing. We unpack what it really means and debunk old myths using real world examples, so you can properly understand all the benefits of this investment strategy. It’s a must for IFAs, fund buyers and portfolio managers alike.

Read more about and access the recordings of the other three webinars in the series:

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