The traditional correlation between a fund's performance and its inflows is collapsing, according to new research that suggests selectors' buying decisions are increasingly based on the price of the product.
Though the growing popularity of low-cost products has become a familar story in recent years, the findings indicate that even the best-performing portfolios may now be unable to withstand the competitive pressure from passives.
Active asset managers saw combined net outflows equivalent to 3.2 per cent of assets in 2016, according to the figures from Morgan Stanley Research, worse than 2015's 2.3 per cent figure. More notably, however, the top quartile of active funds suffered collective outflows of 2.8 per cent last year, compared with net inflows of 2.4 per cent in 2015.
The statistics suggest that even the anticipated shift back to a so-called "stockpicker's market", a move which would benefit active managers, may not be enough to reverse recent fund flow trends.
"The link between fund performance and asset flows is breaking down," the Morgan Stanley team said. "Flows between active funds are still roughly 2.5 times greater than flows from active to passive, meaning pricing strategy and accessing pockets of growth become ever more important."
The report predicted firms will seek to "re-engineer portfolio management" in a bid to protect their businesses from the rise of lower-cost products, focusing on unconstrained approaches and the likes of risk-factor investing - moves that would "blur the lines" between active, passive and alternatives.
