Just last week, S&P Dow Jones Indices refuelled the debate with its research showing that almost 90% of active UK fund managers beat their benchmark index last year.
Elsewhere, in its response to consultations on cost savings for the Local Government Pensions Scheme, one of the country’s largest fund groups Threadneedle Investments warned a large-scale move to passive management would “weaken the ownership mind-set of local authorities and their ability to exercise real stewardship”. Take That!
The Wanted
Still passives, ETFs in particular, are still clearly The Wanted fund structure for wealth managers across the globe who are looking to track indices and cut costs.
Analysis from ETFGI found ETFs and Exchange Traded Products (ETPs) listed globally gathered $33.8bn (£20.1bn) in new assets in July, pushing the year-to-date figure to $160.5bn, which Busted past the previous high for a new record for this point in the year.
It is clear that wealth managers use both active and passive options across portfolios, dependent upon their clients’ needs, which is why it makes little sense compare the two categories as rivals for investors’ affections.
Still, given recent market turbulence, and predictions of further wobbles to come, the pressure is again on active managers being asked to prove their worth with high-conviction positioning.
Elliot Farley, senior fund manager at T.Bailey, is one who foresees another ‘stockpicker’s market’ given how correlated the major markets have become in recent times.
“It becomes very difficult to add value from picking between markets themselves, and actually correlations at a stock level are much more interesting,” he says.
“There is much more opportunity there and, if anything, passive investing adds to that misallocation of capital that in turn creates even more opportunities for active managers at stock level.”
Another level
As all the best pop stars know too well, you sometimes have to reinvent yourself to stay relevant. In the passives world, the emergence of the next generation of ‘smart beta’ funds promises to offer more choice to investors.
More than just an image change, the potential blurring of the boundaries between active and passive will put more emphasis on outcome-driven investing.
A run-through of smart beta will feature in the forthcoming September edition of Portfolio Adviser, out soon. In the meantime, investors are united in hoping markets McFly off to Another Level.
