Why do IMI strategies concentrate on both the return and the cost side of the investment equation?
A. A very brief answer to this question is that returns are probabilistic, whereas cost savings are deterministic. In other words, in the short term, whether or not a particular portfolio is going to be rewarded is unknowable. So, the best an investment manager can do is to position the portfolio in such a way that it has beneficial attributes. These are attributes that the market has historically rewarded. However, the portfolio manager can not control by how much and when these rewards will be realized. The outcomes are entirely probabilistic. On the other hand, any cost savings that can be realized while implementing a portfolio accrue directly to the investor. At the portfolio level cost savings can be realized at two distinct areas: by reducing transaction costs and by deferring taxes on gains. IMIs investment strategies are developed with the expectation to earn excess return, not only from market inefficiencies, but also from savings realized due to extremely low turnover portfo
