Belief in Skill | Stifel Says

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So another scientific dimension called Belief in Skill measures an investor’s decision-making preference This measures how much value you as an investor believe that the professional investor can add to your portfolio. In other words, how confident you are in their ability to generate above-market returns. Investors with a low belief in skill will be less interested in using sophisticated investment techniques to outperform the market and would probably prefer a low-cost basket of diversified investments that simply track the stock market performance, whether up or down. Investors with high scores will tend to believe that the right manager can outperform the market in good and bad years and may also be interested in using investment skill to smooth out market volatility, aiming to produce positive returns in most market conditions. Now, let’s take for example the ongoing debate between active and passive managers: which one does better? Well, we think it really depends on what investors are comfortable with. Active managers focus on generating alpha both on the upside and downside. Which means if the market’s down 10% and the manager is down 7% then that’s alpha generated on the downside, i.e. providing you some cushion on the downside. Now, this could be very helpful for some investors, especially the ones who have low Composure and find it extremely challenging during short-term market swings. Now, if investors land somewhere in the middle, meaning have a neutral view, then we recommend that the portfolio has a more balanced tilt of active and passive managers. The efficient way of doing this is to use the active management budget effectively. Now, to learn more about how we can factor levels of Belief in Skill in your portfolio, speak to your financial advisor about the Stifel Financial ID.

 

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