When an active investing strategy beats passive
The value of a good asset manager comes to the fore amid market volatility and in assessing recent company listings, says Fidelity's Kate Howitt.
Glenn Freeman: I'm here at Morningstar Investment Conference 2018 with Kate Howitt from Fidelity. Now, you were talking today about the role of active managers, and you've got some interesting examples that you were referring to.
Kate Howitt: Thanks. Yeah. One of the great examples of the last few years for active management was a2 Milk. When it listed on the ASX, it had EPS of 0. And so, it's really hard to construct metrics and to understand what sort of a stock it is when it says EPS of 0. So, it really takes an active manager to do the analysis to look into the business model and understand why this stock has no earnings today and what's the outlook for earnings in the future. It turns out that earnings for that business have really gone from strength to strength and driven a huge increase in the share price. And we've been able to capture that in our funds because we did all the baseline work to understand the business.
Freeman: And also, in the current context of returning market volatility, the role of active management is sort of coming to the fore again in that context?
Howitt: I think it's really important to use volatility as an opportunity. So, we are able to buy and sell opportunistically on share price movements that are a bit more extreme than we think is warranted. But it's also really important to not get caught up in chasing your tail and to make sure that you are pushing against the way the crowd is moving rather than chasing things down and chasing them up.