The Victor Haghani indicates that retail investors who attempt to outperform the market by buying individual stocks and complex exchange-traded funds (ETF) might be better off holding broad-based market index funds.
The founder and chief investment officer of this company stated in the CNBC program “ETF Edge” this week: “I’m not sure whether investors have really matured a lot compared to 30 years ago. We are still human and are still influenced by certain biases – especially extrapolation bias, which is the tendency to assume that what has recently happened will continue to happen in the future.”
Haghani was once one of the founding partners of the hedge fund long-term capital management company (Long - Term Capital Management). He stated that in his current company, cost-effective investment strategies are given top priority.
He said, "For individual, non-professional investors, this is still an environment where it is very difficult to generate alpha returns. For them, having an exposure to a broader range of index funds overall can already provide a good service."
In the view of Haghani, engaging with more complex strategies does not necessarily mean having an advantage.
He said, “Whether it’s Citadel, Jane Street, or Hudson River Trading, they are making a lot of money every day. So, this is an environment with plenty of opportunities – provided that you happen to have $1 billion available each year to invest in technology.” He continued, “If you’re a retail investor sitting at home trying to find opportunities, you must realize that your trading opponents are likely to be people like Ken Griffin (the CEO of Citadel), and in the end, that’s unlikely to turn out very well for you.”
"More choices are ultimately a good thing."
However, Valerie Grimba believes that complex funds can play a strategic role in retail investors' portfolios.
The global ETF strategy director of this institution stated in the same interview: "More choices are ultimately a good thing."
She stated that funds holding 10 to 15 stocks can help investors participate in specific investment themes without the need to identify in advance which one will perform best in the end; at the same time, products based on derivatives can also be used in various ways to generate returns.
However, Grimba also emphasizes that investors need to understand the positions and choices of the strategies they select.
She said, "For individual investors, it is more important than ever to understand what they are buying. You should be able to explain to your friends what is inside this ETF and what exactly you are purchasing."
