In Perspectives

It seems like all we hear about today from the Wall Street Journal, Bloomberg, and other market media outlets is the attack on active management and the support for passive management (indexing). This conversation really took off last year when the S&P 500, Russell 2000, and other major indices hit record highs while in some cases active management just did not keep up. That trend has continued over the better part of this year, despite the recent volatility we have experienced over the last month. So the question “Why shouldn’t I use index funds?” has become a question on every investor’s mind.

While there is no simple solution to this question I can help illustrate some key points surrounding the Passive vs. Active debate.

  1. The key characteristic of passive management is, for a minimal fee, your money is being put to work in an index fund that captures every company in that given index (ie. S&P 500). This results in a portfolio made up of 500 names (in the case of an S&P 500 index fund) weighted based on their individual market capitalizations. While this is an inexpensive way to participate in market gains, it is important to remember that index funds also participate fully in a market down period; which is seen by many investment professionals as a cause for concern in the passive investment strategy.
  2. Active management means that your money is being put to work by investment professionals who utilize hands on research when selecting the appropriate stocks to buy and sell. This typically results in a portfolio made up of a smaller number of holdings containing quality companies that these professional investors and researchers think will have success in the future.

Here at Legacy Trust, we believe in the active management approach to investing. We have investment professionals on staff and also partner with a third party research team that spends countless hours researching managers and holdings that fit our investment strategy, while also fitting the client’s specific financial plan. We look for managers with a strong performance track record and characteristics that will provide the best results to a portfolio while protecting in a market downturn. One key statistic we evaluate when researching managers is the up/down capture percentage. This statistic shows how the manager does when the overall market is up and also how the manager performs when the overall market is going down. This may be the single most important factor for our clients; they want to participate in an up-market but want to minimize losses as much as possible in a down-market. By avoiding many of the low quality companies that often are included in a typical index fund; we can deliver superior risk-adjusted returns over the long term.

Legacy Trust and Your Right to Financial Privacy

At Legacy Trust we have established policies and practices that respect the financial privacy of all individuals who use our trust company. We believe it is critical to comply with the laws and regulations designed to secure your financial privacy. Your relationship with us as our client is very important to us, and we want you to understand our policies and practices about handling your information.

This Policy applies to you – This Policy applies to our relationships with individual clients who inquire about or obtain products or services from us for personal, family and household purposes.

Strict security measures – We take the security of information very seriously. We have established security standards and procedures to prevent access to client information. We maintain physical, electronic and procedural safeguards to guard client information.

Limited employee access – We have established procedures to limit employee access to information to only those employees with a business reason for accessing such information. We educate our employees about the importance of confidentiality and client privacy. We take appropriate disciplinary measures to enforce employee responsibilities regarding client information.

Why we collect information – We collect information about you to:

  • accurately identify you;
  • protect and administer your records, accounts and funds;
  • help us design or improve our products and services;
  • understand your financial needs;
  • save you time when you apply for new products and services; offer you quality products and services; and comply with certain laws and regulations;

We collect information – We collect and maintain your personal information so that we can provide investment management and other services to you. The types and categories of information that we collect and maintain about you include:

  • Information we receive from you to open an account or provide investment advice or other services to you (such as your home address, social security number, telephone, financial information and investment objectives).
  • Information that we generate to service your account or from our transactions with you (such as account statements and other financial information).
  • Information on your transactions with nonaffiliated third parties.

We have established procedures so that the financial information we collect is accurate, current and complete. We are committed to work with you to promptly correct any inaccurate information.

Our selective sharing of information – In order for us to provide investment management and other services to you, we do disclose your personal information in very limited instances, which include:

  • Disclosures to nonaffiliated companies as permitted by law, including those who help us service your account (such as providing account information to brokers and custodians).
  • Other limited disclosures as permitted by law, for example, required reports to government entities.

We do not share your information with third parties for marketing purposes. We do not sell your information.

Former clients – If you end your relationship with us, we will continue to adhere to the privacy policies and practices described in this notice.

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USA PATRIOT Act

Important Information About Procedures For Opening A New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

We apologize for any inconvenience this may cause; however, federal law prohibits us from waiving these requirements.

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