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This is the final blog in our series exploring the evolving relationship between active and passive investment strategies . Throughout this journey, we've made one thing clear: this is no longer a binary debate . The key isn’t to pick a side — it’s to focus on what works best for the client.   Blending investment styles gives planners the flexibility to construct portfolios that are diversified, adaptive, and aligned with client objectives. Ultimately, this approach is about better outcomes , particularly when it comes to managing risk and ensuring consistency over time.   Why Blend?   If there’s one image to carry with you from this series, it's the iceberg  analogy. A passive-only strategy may steer straight into the problem and wait for recovery. Active managers, on the other hand, have the discretion to adjust course. But neither strategy is infallible on its own.   By blending both active and passive strategies , planners can: ·        Diversify across investment styles as well as asset classes ·        Reduce exposure to manager-specific or market-specific risks ·        Create a more balanced, smoother return profile  over time   Evidence: Morningstar’s 2023 report on blended portfolios noted that combining active and passive strategies often resulted in better risk-adjusted returns than portfolios that used only one style.   While a blended approach may incur slightly higher fees, the aim is not just to match the market — it's to deliver outcomes above the average , particularly in volatile or transitional markets.   Building Blocks: How to Combine Active and Passive   Think of a well-diversified portfolio like a well-designed building: the foundation may be standard, but the materials and design features must adapt to the context.   Core exposures  — such as global developed equities, UK large-cap or US indices — can often be served well by low-cost passive funds  or ETFs. Satellite exposures  — such as emerging markets, thematic strategies, small caps or ESG-focused mandates — may benefit from active management , where inefficiencies and opportunity gaps are greater.   You can also introduce a tactical overlay , using model portfolios or strategic tilts to adjust asset allocation during changing market conditions.   Blended portfolios are dynamic — they’re built with adaptability in mind.   The Role of Research and Monitoring   There’s a common misconception that passive investing removes the need for due diligence.   That’s not true.   Even with passive funds, planners must understand:   The index methodology  being tracked Cost differentials  between providers The sector and regional biases  within certain benchmarks   With active managers, due diligence goes deeper — evaluating style drift, consistency, and process repeatability.   At QuantQual, we support advisers by:   Conducting research across both active and passive solutions Evaluating fund performance and risk characteristics Helping advisers monitor, compare, and evidence their chosen blend   This ongoing research is key to delivering sustainable client outcomes under frameworks like Consumer Duty .    Case Study: A Blended Portfolio in Practice   Here’s a simplified example of a blended 60/40 strategy designed for a balanced investor:   This blend offers:   Cost efficiency  via core index funds Targeted return enhancement  through active thematic and fixed income exposure Downside risk management  by avoiding rigid index allocation   Over time, such a portfolio could deliver greater resilience in volatile markets , while still maintaining fee discipline.   Conclusion: Active and Passive as Partners   It’s time to move beyond the idea that investors must pick a side. The active vs passive investing  debate is outdated.   Today’s investors deserve portfolios built for outcomes — not ideology. That means using the best tools available, whether they’re passive or active, to meet a client’s goals in a structured and transparent way.   It’s not about choosing sides. It’s about building the right mix — for the right goals, at the right time.

The debate between active and passive investing has been ongoing for decades. On the one hand, passive investing offers simplicity, lower costs, and—statistically speaking—better results for many investors. On the other, active fund managers argue they offer diversification, flexibility, and the potential to outperform.   But in truth, the question shouldn’t be “Which is better?” It should be, “What’s right for this client, in this market, given their objectives?”   As the FCA rightly points out, the focus should always be on client outcomes . In this blog, we explore the active vs passive debate through three key lenses: Fees, Flexibility, and Focus .   Fees: Is Cheaper Always Better?   It’s easy to assume that lower fees equal better value. After all, cost is a tangible number—value is not.   Passive strategies, especially index funds and ETFs, are known for their low costs. Campaigns often highlight how lower fees can significantly boost long-term returns. And studies like the S&P Dow Jones SPIVA Scorecard  consistently show that the majority of active managers underperform their benchmarks over time, particularly in efficient markets like the US.   But here’s the catch: all performance is reported after fees . A well-selected active manager who charges more but consistently adds alpha can still leave an investor better off.   Example: A 30-year-old invests £10,000 for 30 years with a 5% net return. This grows to £43,219.If an active strategy delivers 7% net, the final value is over £76,122 .That’s a £32,903 difference — despite higher fees.   The point? Low fees don’t always equal high value. The real question is: what am I paying for—and am I getting it?   Flexibility: Active vs Passive - Who’s Steering the Ship?   Passive investing is like being on autopilot. You follow the market—wherever it goes. If there's an iceberg ahead, you're staying the course.   That’s fine if you're confident the ship will stay afloat long-term. But active managers can grab the wheel. They can reduce risk, increase cash, avoid distressed sectors, or lean into high-conviction opportunities.   Analogy: ·       A passive fund hits the iceberg and waits for recovery. ·       An active fund tries to steer around it—or avoid that part of the ocean altogether.   Not all passive funds are created equal, of course. Some use enhanced indexing or smart beta strategies, adding a layer of decision-making. These often come with slightly higher costs but may improve risk-return characteristics.   The best active managers use their discretion to avoid problematic sectors and seek new opportunities—especially in less efficient markets  like small caps, emerging markets, or high-yield bonds.   Focus: Goals, Outcomes and Behaviour   Investing should always start with the why . Pure passive funds offer broad market exposure and can suit long-term investors who want to keep costs down and avoid making timing errors.   But they lack personalisation. They can’t exclude industries a client may want to avoid (e.g., tobacco, fossil fuels). They can’t lean into specific themes (e.g., renewables, innovation). That’s where active investing can align better with sustainability goals , ethical preferences , and investment narratives .   There’s also a behavioural advantage in working with advisers and using active managers: keeping clients invested. The real destroyer of wealth isn’t fees—it’s panic selling and emotional decisions.   Blending styles—such as a passive global equity core with an active thematic or fixed income sleeve—can help smooth returns, offer diversification across styles, and manage behavioural risks.   Conclusion: Choosing with Eyes Wide Open   The debate between active and passive doesn’t need to be a zero-sum game. It’s not about sides—it’s about balance.   At QuantQual, we believe a blend of styles, informed by client objectives and market context, is often the best way to manage risk and support outcomes. By looking through the lenses of fees , flexibility , and focus , financial planners can build strategies that are aligned, adaptive, and evidence based.

Introduction: Making Sense of the Investment Landscape In today’s investment landscape, the loudest voices often get the most attention, regardless of whether they represent the majority view. We see this in politics and increasingly in fund management, with the growing popularity of low-cost, passive investment strategies. But the real challenge isn’t choosing one side over the other. It’s finding the right balance. For financial planners and self-directed investors alike, blending different investment styles—rather than choosing between them—can lead to better outcomes. That’s where the core and satellite  approach comes in.   What Is Core and Satellite Investing? Think of the solar system: at the centre is the sun—the core—while the planets orbit around it. Your investment portfolio can work the same way. In this strategy, the core  is typically built from low-cost, broad-market exposures, often passive in nature. Around this core, you place satellites : more tactical, thematic, or opportunistic investments aimed at enhancing returns or diversifying risk.   Benefits of the Core and Satellite Approach Diversification: Blends different asset classes, sectors, and styles Cost Control:  Keeps overall portfolio fees lower by using passive funds at the core Alpha Potential:  Satellites provide room for active managers or niche strategies to outperform Behavioural Discipline:  A stable core can help investors stay invested during market volatility   How to Build a Core and Satellite Portfolio 1. Establish Your Core Usually composed of global equity or multi-asset passive funds (e.g., MSCI World, FTSE All-World) Focused on efficient market exposure, simplicity, and low cost 2. Select Your Satellites Examples include: Thematic funds (AI, clean energy) Active fixed income or income-focused strategies Emerging markets or small-cap active funds Style-based tilts (value vs growth) Aim to capture areas where active managers are more likely to add value 3. Determine Weightings A common split is: Core = 60–80%, Satellites = 20–40% This can be adjusted based on investor risk tolerance, goals, and the strength of conviction in active strategies   Common Pitfalls to Avoid Over-diversifying : Too many satellite positions can dilute the overall portfolio impact Chasing performance : Switching strategies based on short-term trends undermines discipline Neglecting the core : Losing sight of the long-term strategy by focusing too much on tactical plays   Example Portfolio Insights Constructing a core and satellite portfolio isn’t about picking random funds—it requires research and intention. Fixed Income : Often better served by active managers who can navigate duration, credit, and sector risks. Global Equities : Passive funds can work well, but they often have regional or sector biases. Blending with an active global equity fund can improve balance. US Equities : Highly efficient markets favour passive, but small-cap active strategies may still provide an edge. The takeaway? Strategic blending doesn’t necessarily mean significantly higher costs. But it can offer the potential for better long-term outcomes.   Is This Approach Right for You or Your Clients? This strategy won’t suit everyone. If your objective is to keep costs ultra-low and you’re content with average market returns, a fully passive approach may be more appropriate. But core and satellite investing can be ideal for those who: Believe in active management but want to keep costs under control Are comfortable monitoring and adjusting parts of their portfolio Value a structured, disciplined framework for long-term investing   Conclusion: Balance with Flexibility The debate between active and passive is often unhelpfully binary. In truth, it’s not about choosing one over the other—it’s about combining them thoughtfully. A core and satellite strategy brings structure, cost efficiency, and the opportunity to improve returns. And remember, just 1% extra return annually—after fees—compounded over 20 years can make a profound difference to long-term wealth.

Join QuantQual's events for financial advisers in cities like Bristol, Cardiff, London, and Edinburgh. Gain insights and network with industry experts. QuantQual Cutting-Edge Insights for Financial Advisers. Events 2025 QuantQual is out in 2025 with some great fund managers—dates and times to be confirmed. May 7th May - Leeds and York (LGIM, BM, BNY) 29th May - London (LGIM, BlackRock, CT) June 4th June - Newscastle (Hawksmoor, BNY, BM, BlackRock) 5th June - Edinburgh and Glasgow (Hawksmoor, BNY, BM, BlackRock) 11th June - Cardiff and Bristol (Waverton, Premier and BM) 25th June - East Anglia (LGIM, BM, BNY) September 9th and 10th September - Conwy (TBC), Chester, Stockport and Sheffield (Waverton, Hawksmoor, LGIM, BM) 16th and 17th September - Kent/Sussex (TBC) Contact Us for More Details

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