What are the differences between IMI low-turnover strategies and others?
A. There are very few long only managers who claim to be tax efficient in their investment process. Turnover awareness is not in the lexicon of long/short managers. Among the long only managers who are low turnover, one popular technique utilized entails adopting a core and satellite approach to allocating assets. Under this methodology, the core is comprised of index funds and the satellites are actively managed portfolios. The manager is able to achieve lower turnover by taking advantage of inherently lower turnover characteristics of index funds, and by paying careful attention to realization of gains and harvesting of losses. We see two drawbacks with such a process. First, under a core and satellite approach, the investor ends up paying active management fees for a process that only actively invests 40-50% of funds. Second, any tax efficiency achieved is entirely due to back office operations. Unless the manager utilizes a long term investment strategy that is built from the groun
