Active vs passive investing in Australia, and why systematic is different
The debate between active and passive investing has been running for decades. Passive advocates argue that most active managers fail to beat the index after fees, so why pay for underperformance? Active advocates argue that skilled managers can and do generate alpha, you just need to pick the right ones.
Both sides have a point. But the debate largely ignores a third option: systematic investing.
The case for passive
Low-cost passive index funds are a rational choice for many investors. Costs are minimal, returns track the market, and there is no manager selection risk.
The argument is compelling because the data supports it. Over long periods, the majority of active fund managers underperform their benchmark after fees. If you cannot reliably identify the minority who will outperform, passive is a sensible default.
But passive has its own limitations. A passive fund owns the index, including overvalued companies, companies in structural decline, and an increasing concentration in a small number of large constituents. You get the market's returns and all of its inefficiencies. Your money should do more than buy an index.
The problem with traditional active
Traditional active management, where a portfolio manager selects stocks based on research and conviction, has genuine weaknesses that are well-documented.
Human beings are subject to cognitive biases. Anchoring, loss aversion, overconfidence, and recency bias all affect investment decisions, even for experienced professionals. Key-person risk is real. Style drift happens. And fees for active management are typically high, making outperformance even harder to sustain.
This does not mean active management cannot work. It means most active managers do not have a sufficiently robust process to overcome these limitations consistently.
Where systematic investing sits
Systematic investing occupies a distinct position between passive and traditional active. It is not a revolution in equities, it is a quantum evolution in fundamental investment portfolio optimisation.
Like passive, it removes human emotion and bias from the day-to-day investment process. Like active, it seeks to identify and capture opportunities that the index does not. The difference is how it does this, through data, rules, and machine learning applied consistently, not individual conviction.
| Passive | Traditional Active | Systematic | |
|---|---|---|---|
| Seeks alpha | No | Yes | Yes |
| Removes emotional bias | Yes | No | Yes |
| Rules-based | Yes | No | Yes |
| Adapts to market conditions | No | Yes | Yes |
| Transparent process | Yes | Varies | Yes |
| Key-person risk | Low | High | Low |
How Avangard approaches this
Avangard's systematic process is designed specifically for the Australian equity market. A.L.F.R.E.D. monitors 2,500+ ASX-listed securities daily, applies 24 years of proprietary momentum models, and produces a disciplined, data-driven view of the market that drives portfolio construction.
The strategy has historically exhibited a low correlation to the ASX 200, indicating that the portfolio has behaved materially differently from the broader market. For investors, this differentiated return profile may support Avangard's role as a genuinely complementary allocation within a broader Australian equity portfolio, not simply more of the same.
For wholesale investors who want more than a passive index allocation but are sceptical of traditional discretionary active management, systematic investing offers a credible and rigorous alternative.
Systematic investing for evolving markets.
To learn more, request our Information Memorandum at office@avangard.au or through the form on our website.
Past performance is not a reliable indicator of future performance. Correlation figures reflect historical data and are not a guarantee of future portfolio behaviour. The fund is available to wholesale investors only.