|Industry Problem||10X Solution|
Investors are led to believe that professional managers reliably beat the market index. But after costs, the index beats around 80% of professionally managed funds.
10X portfolios are indexed as index funds beat most professional managers.
We use index funds, to ensure you earn the full market return at low cost.
An index fund seeks to mirror the performance of the benchmark index by investing directly in the investments that make up the index. The alternative strategy is to trade the investments in the index in the hope of earning a return above the index return. This is called active management.
Only 1 in 5 fund managers has managed to beat the market index.
Active managers have a dismal track record
Source: General Equity unit trusts vs. JSE All Share Index. Profile Data and 10X Investments, five years to March 2014.
As past performance is not an accurate predictor of future performance, the probability of identifying these outperformers ahead of time is equally low. Not dissimilar from playing Russian roulette – not with one chamber loaded, but with one chamber empty!
Incidentally, 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).
As a group, all investors (no matter how smart they may appear) can do no better than earn the average index or 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 average return.
This is before costs, however. As the cost of indexing is lower than active management, on average indexing delivers a higher return than active management.
10X replicates the following indices:
Asset class Benchmarks SA Equity 10X Top 60 SA Share Index SA Bonds Composite GOVI and SA Inflation-linked Bond Index SA Property Equity 10X SA Property Index SA Cash AF Short Term Fixed Interest Index International Equity Global All Cap Index and Emerging Markets Index International Currency US Dollars
Source: 10X Investments
Each index is well diversified and a good representation of the market within that asset class. The investments that make up each index are liquid enough to buy and sell easily.
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 10X Top 60 SA Share Index and 10X SA Property Index (the “indices”) is the property of 10X Investments (Pty) Ltd, which has contracted with S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC) to calculate and maintain the Index. The Indices are not sponsored by S&P Dow Jones Indices or its affiliates or its third party licensors (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices will not be liable for any errors or omissions in calculating the Index. “Calculated by S&P Dow Jones Indices” and the related stylized mark(s) are service marks of S&P Dow Jones Indices and have been licensed for use by 10X Investments (Pty) Ltd. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“SPFS”), and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”).