Diversification is at the heart of our investment philosophy at Netto Invest. The obvious application is diversifying investment portfolios across asset classes and geographical regions, but equally important is diversification across investment styles and processes.
That’s why we believe in combining both active and passive investing strategies within your investment portfolio whenever appropriate.
The role of passive investing
Passive investing solutions are designed to mirror the performance of a particular index, such as the JSE All Share or the S&P 500, without relying on human judgment or frequent trading decisions. As a result, these solutions can keep costs low and offer an efficient, transparent way to gain consistent exposure to broader markets’ performance.
Over time, passive investing can be a powerful way to build long-term wealth – particularly in areas of the market where it’s difficult for active managers to consistently outperform the indices.
The value of active management
While passive funds play an important role, we continue to see strong value in active management as well. Skilled managers who use disciplined investment processes and have strong long-term track records can add value by identifying opportunities that indices overlook – such as mis-priced shares, undervalued sectors, or shifts in economic trends.
Active managers can also adapt their positioning as market conditions change, helping to manage downside risk and smooth the investment journey for their clients. We find this flexibility is particularly useful through different phases of the economic and market cycles, when volatility and sentiment can shift quickly.
Blending the two approaches
In practice, we find that combining active and passive strategies creates a well-balanced, cost-effective, resilient portfolio. Passive funds provide the “core” market exposure, while active managers add depth and flexibility – the ability to make allocation decisions, take advantage of opportunities, and provide an additional layer of risk management.
We are also careful to diversify across different asset managers and investment philosophies. Each asset manager interprets market conditions in their own way, so by including a range of perspectives – from value-focused to growth-oriented managers, from conservative to more opportunistic approaches – we avoid over-reliance on any single world view. This diversification of thought helps protect against bias and improves consistency in your investment outcomes over time.
Managing risk throughout the cycle
Most of the strategies we use at Netto Invest are multi-asset or asset allocation funds, which means the managers have discretion to shift between asset classes as market conditions change. This dynamic approach helps manage volatility and aligns well with our focus on delivering smoother long-term returns.
By blending both active and passive strategies, we aim to capture the best of both worlds – the efficiency and cost advantages of passive investing, and the insight and adaptability of active management.
We see this as a practical, balanced approach to portfolio construction – one that manages risk, embraces different perspectives, and positions you to benefit through the full investment cycle.
Cameron McCallum, CFP® CA(SA)
Managing Director, Wealth Manager
