Fees

Coming to terms with the practical aspects of portfolio management means being prepared to face the realities of the investment business and asking the tough questions that matter.

Many investors expect that an active manager should aim to deliver value that justifies their fees, ideally beyond what could be achieved through a low‑cost passive index. Studies have shown that passive index funds often outperform a large portion of active managers over time, particularly once fees and costs are considered. For this reason, evidence and a clearly defined strategy for how an investment manager seeks to add value beyond a passive index are important. The industry has long faced the challenge that many portfolio managers have historically struggled to keep pace with broad market indexes after accounting for fees and expenses.

Many investment managers charge quarterly or annual fees based on a percentage of assets under management (AUM), which typically includes both the initial investment and any gains. While this fee structure is common and straightforward, it can add up over time and may affect net results. Historically, consistent outperformance of passive index funds has proven difficult for many managers, especially after fees are considered.

Koko Asset Management generally does not invest in ETFs, highly diversified portfolios, or options. Instead, the focus is placed on selecting and analyzing a concentrated group of equities that, in the manager’s view, may present characteristics supportive of long‑term outcomes — characteristics not always found in broader or more conventional approaches. In practice, such opportunities are relatively uncommon.

Relying on a portfolio of dozens or even hundreds of stocks may not always reflect the practical considerations involved in pursuing long‑term investment goals. The number of businesses that align with these goals is relatively limited. Simply put, relatively few companies may present characteristics that fit within a disciplined, long‑term approach.

There are also certain realities of the stock market that must be considered. Historical patterns of behavior have been observed repeatedly over the past century, though future conditions remain uncertain. Communicating these observations in a clear and common‑sense way is part of what may be expected of a thoughtful investment manager. Such knowledge can inform stock selection and may influence the long‑term investment experience.