Active vs. Passive Investment Management

It is well known among academics and professional money managers that, while active investment managers can add value, in aggregate they tend to underperform a given market average because of add-on fees and taxes. Despite imposing a burden of due diligence and continuous monitoring, ICO selects active asset managers with the right fee structures and incentives aligned with ICO, to supplement investing for its own account in the public markets.

Information-based,asymmetric, and less-liquid strategies are most likely to outperform

Inefficiencies are best exploited through non-traditional investments that have greater potential to reward active management and a disciplined manager selection process.

Hold cash to reduce risk.

Holding cash (or deleveraging) can reduce a portfolio’s risk and return profile without sacrificing portfolio diversification.

Tax optimization is important.

While tax rules vary across investment situations, ICO considers after-tax returns when making all its investments.

Investing innovation has exploded over the last several decades. Technology has enabled and will continue to enable new approaches such as high-speed trading, increasingly fine niche strategies, ETF market surrogates, etc. Despite this, ICO does not feel the need to fundamentally change its value-based investment philosophy and processes, grounded in approaches developed decades ago. Patient analysis and adherence to a value-based discipline will continue to outperform versus other investing disciplines over a market cycle.