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W O R K \ F I N A N C E \ L I F E
W H O ’ S WAT C H I N G YO U A N D H O W T O F I G H T B AC K
Twelve Leaders in Cybersecurity; Can Tech Disrupt War?; The Intrapreneurship Boom
Soledad O’Brien on Smart Guns; Essential Insurance for the Affluent; How to Manage Market Volatility
Defending Your Home; The Safest Luxury Cars; New Technologies for Protecting Wine Collections
T H E E V O L U T I O N O F F I N A N C I A L I N T E L L I G E N C E
W O R T H . C O M
V O L U M E 2 5 | E D I T I O N 0 2
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S T A B L I S H E D 1 9 9 2
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R T H M A G A Z I NE
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TEAMCaleb "Spuds" Powell, CPWA®, Managing Director
Randall Allen, Senior Vice President
Grace Apuy, CFP®, Senior Vice President
Darnel Bentz, Senior Vice President
Curt Biren, CPWA®, AIF®, Senior Vice President
Thomas Connaghan, Senior Vice President
Dustin Gale, CFP®, Senior Vice President
Diane Spirandelli, CFA®, Senior Vice President
ASSETS UNDER MANAGEMENT$9.6 billion (as of 12/31/15)
LARGEST CLIENT NET WORTH$500+ million
MINIMUM FEE FOR INITIAL MEETINGNone required
MINIMUM NET WORTH REQUIREMENT$1 million
PROFESSIONAL SERVICES PROVIDEDInvestment advisory and money management services
COMPENSATION METHODAsset-based fee (investment services)
PRIMARY CUSTODIAN FOR INVESTOR ASSETSFidelity Investments
FINANCIAL SERVICES EXPERIENCEPowell, 21 years; Allen, 16 years; Apuy, 10 years; Bentz, 13 years; Biren, 28 years; Connaghan, 18 years; Gale, 10 years; Spirandelli, 43 years
[email protected]@[email protected]@[email protected]@[email protected]@kayne.com
WEBSITEwww.kayne.com
L E A D I N G W E A L T H A D V I S O R | L O S A N G E L E S — S A N F R A N C I S C O , C A
I L L U S T R A T I O N B Y K E V I N S P R O U L S
Why should investors consider actively managed investments?B Y K AY N E A N D E R S O N R U D N I C K
Front row: Diane Spirandelli, Dustin Gale, Caleb "Spuds", Powell, Grace Apuy; back row, left to right: Thomas Connaghan, Randall Allen, Darnel Bentz; not pictured: Curt Biren
KAYNE ANDERSON RUDNICK1800 Avenue of the Stars, 2nd Floor, Los Angeles, CA 90067
580 California Street, Suite 1750, San Francisco, CA 94104800.231.7414
B Y K AY N E A N D E R S O N R U D N I C K
Kayne Anderson_WOR41.indd 106 3/16/16 4:03 PM
107WO R T H .CO M A P R I L- M AY 2 0 1 6
ne of the great ongoing debates in personal finance asks the question: Are investors better off in passively managed investments, which seek to replicate the performance of a spe-cific index benchmark, or in actively managed investments, which aim to outperform a benchmark based on skilled investment selection?
If investor activity is any indication, the past decade has marked a clear victory for the passively managed side. Between 2007 and 2014, according to the Investment Company Institute, index domestic equity mutual funds and ex-change-traded funds received $1 trillion in new cash and reinvested dividends, while actively managed domestic equity mutual funds experienced net outflows of $659 billion.
Meanwhile, studies focusing on the average performance of thousands of actively managed funds in the large-
capitalization universe consistently claim that the average actively managed fund struggles to beat its benchmark net of fees.
In short, passively managed funds have garnered a solid reputation as the more cost-effective and tax-efficient way to par-ticipate in the market.
Yet there are benefits to active-investment strategies that earn them a place alongside passive strategies in investor portfolios: His-torically, active management has provided op-portunities for generating outsized returns in certain market segments and asset classes—for example, within areas of small-cap, small-
cap international and emerging-markets stocks, as well as bonds and real estate.
Skilled active managers have the oppor-tunity to look past the indices and find great companies that have management track records, competitive advantages, free cash flow and low levels of debt. While pas-sive strategies buy everything in bulk, ac-tive managers comparison shop and hunt for deals.
This type of stock selection may not be as valuable in a rising market, when busi-nesses start to improve across the board, as they did between 2009 and 2014. Recovery creates a rising tide that buoys everything
within a given index, regardless of the qual-ity of the underlying businesses.
But during times when rampant growth is not a given, and when there is a substantial difference between the returns of the best- and worst-performing stocks, “stock picking” stands out.
In fact, it’s the skilled managers who veer furthest from their benchmark indices who add the most value. This is known as high-active share, and research by economists Antti Petajisto and Martijn Cremers has found that while the average actively managed fund lost to its benchmark by -0.41 percent be-
tween 1990 and 2013, during the same pe-riod, the most active stock pickers beat their benchmarks by an average 2.61 percent be-fore fees and expenses, and an average of 1.26 percent net of fees and expenses.
Active management can also lead to out-performance when interest rates are rising. Historically, during years in which the 10-year Treasury yield rose, actively managed funds have beaten their benchmarks by an average 1.5 percent, and have trailed by about as much in years when rates fell. This may be because rising rates can widen dispersion in performance between the best and worst performing stocks. It may also have to do with the fact that active managers tend to favor small companies, which historically perform better when interest rates rise.
The answer to the question, then, of ac-tive or passive? Both...but manager selection counts. Even the folks at the Vanguard Group, the investment company known for its com-mitment to indexing, acknowledge that there is room for active management in investors’ portfolios, if the average investor is able to select talented active managers with a track record of adding value at a low cost.
In sum, investors would do well to seek out investment firms that offer a culture of excellence, a disciplined philosophy and process—and a differentiated approach to the markets. l
Information expressed herein is strictly the opinion of Kayne Anderson Rudnick and is provided for discussion purposes only. This report should not be considered a recommendation or solicitation to purchase securities. Past performance is no guarantee of future results.
K A Y N E A N D E R S O N R U D N I C K
RANKED AMONG THE TOP 10 OF BARRON’S LIST OF TOP INDEPENDENT
FINANCIAL ADVISORS FOR THE LAST THREE YEARS, KAYNE ANDERSON
RUDNICK IS A BOUTIQUE INVESTMENT ADVISORY FIRM FOUNDED IN
1984 TO MANAGE CAPITAL FOR ITS FOUNDERS, INCLUDING JOHN ANDERSON
(A FORBES 400 BILLIONAIRE AND THE BENEFACTOR OF UCLA’S ANDERSON
SCHOOL OF MANAGEMENT). With offices in Los Angeles and San Francisco, the
company manages assets for both high net worth individuals and institutions. Its
advisors boast an average client relationship duration of 11 years and a retention
rate of 98 percent, thanks to outstanding client service and personalized investment
strategies designed around clients’ unique circumstances and objectives. Disciplined
risk management and diversification are key components in helping clients achieve
their goals. Accordingly, the company’s comprehensive platform offers proprietary
investment strategies and a range of carefully selected, externally managed investment
solutions. With 30 years of experience blending traditional and alternative investments,
Kayne Anderson Rudnick is known for its commitment to high-quality business
practices, investment strategies and wealth solutions. l
A B O U T U S
The answer to the question of active or passive? Both, but manager selection counts.
O
Kayne Anderson_WOR41.indd 107 3/16/16 4:03 PM
Kayne Anderson Rudnick is featured in Worth® 2016 Leading Wealth Advisors™, a special section in every edition of Worth® magazine. All persons and firms appearing in this section have completed questionnaires, have been vetted by an advisory group following submission by Worth®, and thereafter paid the standard fees to Worth® to be featured in this section. The information contained herein is for informational purposes, and although the list of advisors presented in this section is drawn from sources believed to be reliable and independently reviewed, the accuracy or completeness of this information is not guaranteed. No person or firm listed in this section should be construed as an endorsement by Worth®, and Worth® will not be responsible for the performance, acts or omissions of any such advisor. It should not be assumed that the past performance of any advisors featured in this special section will equal or be an indicator of future performance. Worth®, a publication of the Worth Group LLC, is a financial publisher and does not recommend or endorse investment, legal or tax advisors, investment strategies or particular investments. Those seeking specific investment advice should consider a qualified and licensed investment professional. Worth® is a registered trademark of the Worth Group LLC.
Caleb "Spuds" Powell, CPWA® Managing Director
Randall Allen Senior Vice President
Grace Apuy, CFP® Senior Vice President
Darnel Bentz Senior Vice President
Curt Biren, CPWA®, AIF® Senior Vice President
Thomas Connaghan Senior Vice President
Dustin Gale, CFP® Senior Vice President
Diane Spirandelli, CFA® Senior Vice President
Kayne Anderson Rudnick1800 Avenue of the Stars, 2nd Floor
Los Angeles, CA 90067
580 California Street, Suite 1750San Francisco, CA 94104
Tel. 800.231.7414
[email protected]@[email protected]@kayne.com [email protected]
[email protected] [email protected]
[email protected] www.kayne.com
R E P R I N T E D F R O M
®
T H E E V O L U T I O N O F F I N A N C I A L I N T E L L I G E N C E