"The idea that any single individual without extra information or extra market power can beat the market is extraordinarily unlikely. Yet the market is full of people who think they can do it and full of other people who believe them." Daniel H. Kahneman, Nobel Laureate 2002

Asset class investing provides superior performance compared to actively managed or index funds as it avoids exposing investors to unrewarded risk, transaction and tax costs. Instead, it provides a diversified exposure to blended asset classes within an efficiently structured portfolio. In short, it delivers better returns without exposing investors to undue risk.

Both active and passive fund models are flawed

Fund managers charge for their services, as a result, active funds must beat the overall market by at least this amount for an investor to maintain even average index returns after costs. These higher than average returns can only be achieved through greater risk.

One of the flaws of the active fund model is that investors are exposed to the downside of greater risk without benefiting from the full upside of this exposure. And research consistently shows that over 70% of fund managers fail to deliver even average market returns.

An index fund seeks to replicate a stock exchange index at all times. This usually means repeatedly buying and selling significant volumes of the same stock over the course of a year - activity which incurs transaction and tax costs. An important flaw of index funds is that investment performance is adversely affected by the cost of investment churn.

Asset class investment structure delivers performance

Asset class portfolios provide access to diverse blends of asset classes through a variety of investment pools. An investor's choice of investment pool will deliver precisely the blend of asset classes most appropriate to his or her lifestyle objectives and circumstances.
The powerful financial engineering applied to these portfolios focuses on aspects of the investment experience which can be controlled, namely:

• Diversification (allocation of assets)
• Transaction costs (buying and selling stock)
• Taxes (especially capital gains tax)

Diversification is essential

Asset class portfolios provide global exposure to a wide spread of underlying equities and defensive assets such as property and fixed interest products - numbering in the thousands.

These portfolios avoid the risk of concentrating investments which can occur when investors own multiple actively managed funds. Investors should seek to minimise risk
by diversification. But the diversification must be at the asset (investment) level and not at the fund manager level to be effective.

Transaction and tax costs are minimised

This asset allocation model follows a longer-term buy and hold strategy which minimises both transaction and tax costs. On a compounded basis over many years, these cost savings can significantly boost investment performance.