Investment Style
10X’s index funds secure the market return at low cost
The 10X Life-stage portfolios invest in index funds. An index fund seeks to mirror the performance of a stock market index by investing directly in the shares that make up that index. 10X replicates the following indices:
The Deutsche Bank 10X SA Share Index is independently calculated and measured by Deutsche Bank, and is used by 10X to gain balanced and direct South African equity exposure for its retirement funds. The index tracks the 60 largest companies on the FTSE JSE All Share Index (representing approximately 90% of its market capitalisation) but no share is allowed to comprise more than 6% of the index at the time of re-weighting. The 6% cap reduces concentration risk to internationally acceptable levels. The Deutsche Bank 10X SA Share Index is listed on Bloomberg, I-Net and is available at https://index.db.com/dbiqweb2/index/deutsche_bank_10x_south_africa
Why index funds?
Typically, less than 1 in 10 fund managers beat the market index over twenty years.
Figure 6: Active managers have a dismal track record
Source: General Equity unit trusts vs. FTSE JSE All Share Index. Profile Data. December 2010
As past performance is not an accurate predictor of future performance, the probability of identifying these outperformers ahead of time is equally low. The experience is no different internationally. In the US, only 10% of active-managed equity funds have outperformed the index over the past 25 years (Source: Lipper).
Active management is a zero-sum game
As a group, all investors (no matter how smart they may appear) can do no better than earn the market return. For someone to be overweight a winning share, someone must be underweight, so for every winner there must be a loser. The winners and losers cancel each other out, to equal the market return. This is before costs, however.
Index funds outperform due to lower costs
As the cost of indexing is lower than active management, on average indexing delivers a higher return than active management. This is why 10X uses index funds as its investment style.