 Quote:
Originally Posted by innova
So if your risk aversion says you need to hold cash/bonds, just hold cash/bonds in the right place and avoid the extra expense of the managed fund. You are betting that your manager has insight the rest of the market does not. Holding that cash in down times does cushion the fund against steeper losses AT THE COST of missing out on gains when the market recovers. If you want to decrease volatility, don't market time, just hold an appropriate amount of fixed assets / cash.
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That's not at all what I am talking about when I said that "managed funds have the flexibility to reallocate their portfolio to reflect new market conditions". I am not talking about a fund manager going all cash in a crisis. I am talking about reallocating the equity portfolio among various equity sectors. For example a managed fund could slash their exposure to financial stocks and increase their exposure to energy stocks for example if the manager sees fit. An index fund can't do absolutely nothing to avert losses, even if the manager knows financials are going to hit a brick wall. So yes I am betting that my fund manager will have some insight in the market that I don't have. I understand there is a manager risk but I am willing to take that risk.
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