Passives are a cheap and easy way to hedge and active managers need to embrace their adaptability, Algebris’ Davide Serra has said.
‘When we need to hedge or when we need to borrow, we use passives because that is the cheapest way to do so.
'Whether that’s in fixed income or equities, I love passives because they create a liquid way of having exposure to an asset class,’ he told Citywire Selector.
Serra said hedging gives investors more options when it comes to holding either long or short positions. He highlighted that, ultimately, the instruments give investors freedom.
‘When I started this business 25 years ago most of my clients were benchmark huggers and they would be being charged a huge fee for effectively following a benchmark.’
Serra said the world has become smarter by using passives, but said the team adds value by being ‘ultra-active’.
‘If you concentrate your talent then you have an advantage that leads to long-term returns. For example, I would buy things for my kids to use at school from Amazon, it’s cheap, it’s fast, it’s safe and it’s a one-click buy. That would be my ETF exposure.
‘But at the same time, if I want my kids to learn how to ski or to improve their math, I will choose a great tutor or ski instructor in order to make sure they master that skill.
'We would class this as ultra-active, one name, one person, one skill set. So as in life, as in investments,’ he added.