Evaluating the performance of active and passive investment funds in South Africa

Abstract

This thesis addresses the core debate of active and passive funds in the local and global environment. A key component is whether active managers can use their experience and knowledge to outperform the market. The research makes use of the elements of classical economic theory to formulate a conceptual model. The conceptual model will assist in the understanding of the complexities these fund managers face. Rathbones (2019) states that “the debate over the respective merits and shortcomings of active and passive investment management may have begun several decades ago, but it remains one of the most divisive issues in the world of investing" . This report will investigate "the ability (or not) of [whether] active managers [can] beat their underlying benchmarks and whether investors should simply abandon active strategies for passive investments" (Rathbones, 2019). Rathbones (2019) believes that this debate is pivotal for an investor "when formulating an investment strategy" (Rathbones, 2019).

To bridge the theoretical and practical elements of this topic, a simple systematic research was created, which includes quantitative and qualitative factors. This research allows one to understand the dynamics of the hedge fund world. An analysis and discussion about the various components which contribute to a fund’s strategy form the preamble to this paper.

An analysis of the various key elements which contribute to a fund’s success follows, including analytical examples of funds' past performances and what key factors contributed to these funds. The key funds selected are various active and passive funds which are listed later in the paper.