“The biggest change in the US mutual fund industry is — it went from an industry where mutual funds were being sold to one where they are being bought. It is all about a shift in priority,” Don Philips, Managing Director of Morningstar Inc, said at the Morningstar Investor Conference.
“At the end of the day, if the investor does not win, everyone in the process loses,” he said, adding that it has become a buyers’ market in the US and that was the key change he has seen over the last few decades.
Philips, Morningstar’s first mutual fund analyst who went on to become its CEO and now the Managing Director, says he started investing in mutual funds when he was 13. “I always look at it as something responsible adults do. I’ve always had the belief in the power of mutual fund investing,” he said.
Philips believes the active-versus-passive debate has been overrated, and there was a place for each style of investing in one’s portfolio.
“There is too much made of the active-passive debate. There is no right or wrong way to investing. That said, I am a fan of both. There is a place for each in the portfolio,” he said.
He emphasized the importance of being a smart investor rather than dabbling in which side one wanted to lean towards. He said active investing called for more homework in terms of understanding who the portfolio managers are and what their strategies are, and also digesting what these managers could change. “Active investing may be more rewarding. Passive on the other hand, is much simpler,” he said. “There is no either or choice here,” he said of the two options.
He said the options available for investors were more than ever before, and they had a bouquet of offerings to choose from depending on their styles, preferences and goals.
“Investors have never had more options before. That is something we should all be very pleased with,” he said.
Philips believes the new age smart beta funds will continue to grow, and it increases the number of options in front of the investors.
Smart Beta Funds are factored indices, where a fund manager follows an index based on certain sacrosanct rules, which remove any human emotion while making investment decisions, thereby ensuring that the philosophy of the investment remains passive.
But the style of investment becomes rule-based, hence, active.
In the end, he emphasized that there was no right or wrong way to invest.
“You can invest in active funds, smart beta funds, or even choose to directly invest in stocks. There is no right or wrong way to do it. You need to make sure that you have the resource to do that intelligently,” he said.