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RBC: when passives come into their own
by Emma Dunkley on Feb 25, 2013 at 10:06
You are predominantly an active manager, but how do you use exchange traded funds (ETFs) or index trackers?
We have used them recently to supplement our active holdings in the US, because it is a large and liquid market.
Over the past couple of years, it’s been very hard for active managers to outperform and differentiate themselves because the markets have been driven by government action, rather than economic fundamentals. So it’s hard for active managers to do consistently well.
In those conditions, we used S&P 500 trackers to broaden our exposure. When we take the view conditions are changing, one of the benefits of ETFs is that it’s easy to switch out of them and move into active funds.
We are actually in the process of doing that right now. We felt the decisions at the start of January by the US Federal Reserve now mean the market is being driven more by fundamentals.
Do you use ETFs for tactical exposure?
We have a physically backed gold exchange traded commodity (ETC), which we have opted for rather than a product backed by a swap, as it’s less risky.
We also have a physical silver ETC. These enable us to have short-term tactical exposure, whereas the S&P 500 is more of a way to continue to execute the strategy with a long-term view.
The gold and silver ETFs are a short-term tactical way of taking advantage of positive price movements.
Do you ever use swap-based products?
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