Active vs Passive

Active vs Passive

Market Overview

A struggling local economy, flight of capital from emerging markets to developed markets, a volatile Rand and generally low or negative growth in company earnings have been the main drivers of the poor performance in the South African equity market.

The Rand has weakened significantly against the major currencies (-12.8% YTD against the USD) benefiting South African investors invested in developed offshore markets. The Nasdaq market has shown sharp increases year-to-date (+16.6%), with the JSE All Share Index down by -6.4% year-to-date.


Portfolio Overview

The portfolio gave back most of the gains from August in September, largely as a result of a sharp drop in Aspen’s share price, a slight strengthening of the Rand and weak local markets.

During the month, we sold our holdings in Aspen (unconvincing results) and Facebook (reduce Tech exposure and too many data breaches), we acquired Berkshire Hathaway (to increase diversification and defensiveness in the portfolio) and increased our holdings in PSG (large discount to NAV and very good results from Capitec).

Approximately 38% of the portfolio is offshore; 22% of the portfolio is in Cash; 22% is in the Technology sector; 22% in Financials; and 9% in Biotechnology.

We continually seek opportunities in our preferred investment themes to deploy our cash, but remain patient until the right opportunities present themselves.


Key Indicators


* Lunar BCI Worldwide Flexible Fund


Top 10 Holdings


What we are thinking about: Active vs Passive Investments

“Is it a good idea to invest with absolutely no regard for company fundamentals, security prices or portfolio weightings? Certainly not. But passive investing dispenses with this concern by counting on active investors to perform those functions.” Howard Marks.

Passive investing (i.e. index based investing like Satrix 40, Ashburton Mid-Cap, Sygnia Itrix MSCI US) have been all the rave in the past few years. The main arguments for passive investing been lower management fees and that many active managers do not outperform their benchmark indices. Active managers, on the other hand seek out good investments by analysing fundamentals of those businesses and the markets that they operate in and trying to establish whether those businesses are trading below intrinsic value. So, active managers’ decisions on whether to buy or sell certain shares, in fact derive the price for those shares. These prices then set the weightings and the prices on those respective indices.

Passive managers would thus adjust their portfolios to be in line with the revised weightings on the indices. This is effectively like riding on the back of active managers.

There is another inherent danger in passive investing, as index-based (i.e. passive) investing becomes more popular. An investor in a passive fund effectively perpetuates the weightings on the index. By buying more of higher weighted shares, they make those shares more expensive as there is no regard for valuation, only the weighting on the index. Marks argues that this could lead to significant dislocations in the markets when there is a large sell off.

It is understandable that investors want to reduce costs and grow their investments. Passive investing has certainly put costs in the spotlight and many active investment managers have adjusted their costs. Passive investing, by definition should also perform in line with the market less costs. Passive investing, however cannot exist without active investors.

The challenge for investors is to seek out active managers that will outperform over time and combine that with a selection of low-cost, passive funds. Which active managers should one choose? Which passive funds should one select? These are no easy questions to answer.

The long-term costs of staying out of the equity markets however are much more severe than not getting your fund selection absolutely right. Investors must seek to obtain real growth in their savings and investments. This requires at least some equity investments.


Transact Online

Clients invested in the Lunar BCI Worldwide Fund can obtain statements, tax certificates or transact online at:

Investors considering an investment in the Lunar BCI Worldwide Flexible Fund can obtain more information at and obtain application forms at



Boutique Collective Investments (RF) (Pty) Ltd (“BCI”) is a registered Manager of the Boutique Collective Investments Scheme, approved in terms of the Collective Investments Schemes Control Act, No 45 of 2002 and is a full member of ASISA. Collective Investment Schemes in securities are generally medium to long term investments. The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. BCI does not guarantee the capital or the return of a portfolio. Collective Investments are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees, charges and maximum commissions is available on request. BCI reserves the right to close the portfolio to new investors and reopen certain portfolios from time to time in order to manage them more efficiently. Additional information, including application forms, annual or quarterly reports can be obtained from BCI, free of charge. Performance fees are calculated and accrued on a daily basis based upon the daily outperformance, in excess of the benchmark, multiplied by the share rate and paid over to the manager monthly. Performance figures quoted for the portfolio are from Morningstar, as at the date of this minimum disclosure document for a lump sum investment, using NAV-NAV with income reinvested and do not take any upfront manager’s charge into account. Income distributions are declared on the ex-dividend date. Actual investment performance will differ based on the initial fees charge applicable, the actual investment date, the date of reinvestment and dividend withholding tax. BCI retains full legal responsibility for the third party named portfolio. Although reasonable steps have been taken to ensure the validity and accuracy of the information in this document, BCI does not accept any responsibility for any claim, damages, loss or expense, however it arises, out of or in connection with the information in this document, whether by a client, investor or intermediary. This document should not be seen as an offer to purchase any specific product and is not to be construed as advice or guidance in any form whatsoever. Investors are encouraged to obtain independent professional investment and taxation advice before investing with or in any of BCI\’s products.

This research report (“report”) is confidential, issued for the information of clients of Lunar Capital (Pty) Ltd (“Lunar”) and may not be issued to members of the, nor published in, public. The information, research and opinions contained herein have been formulated in good faith and where applicable have been derived from published sources generally reliable and believed to be fair, however the information, research and opinions, as the case may be, are not warranted to be complete or accurate. Lunar does not assume liability or responsibility for their form, sufficiency or accuracy. Any person making use of this report does so entirely at his or her own risk. Lunar does not assume liability for any losses arising from any errors or omissions in this report, irrespective of whether there has been any negligence, including gross negligence, by Lunar, its affiliates, officers or employees, and whether such losses are direct, indirect or consequential. This report is neither an offer nor a solicitation to buy or sell, and is not intended to call attention to, or to market, or promote the services of Lunar. Lunar does not have a proprietary interest, other than a possible casual or arbitrage interest, in any of the listed companies referred to herein and no director of Lunar, unless otherwise stated in this report, is a director of the companies referred to herein. Lunar Capital (Pty) Ltd, FSP 46567, Reg No. K2015013022. Collective Investment Schemes in securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. Commissions and incentives may be paid and if so, would be included in the overall costs. The Unit Trust portfolios are licensed under the Boutique Collective Investments Scheme. Boutique Collective Investments is a full member of the Association for Savings & Investments SA.


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