The NMG Consulting UK Adviser Market Volatility Pulse survey, published this week (April 21), showed advisers intended to move assets from passive to actively managed funds in response to the market volatility caused by the coronavirus crisis.
NMG polled 209 UK financial advisers earlier this month and found nearly a third (31 per cent) thought the crisis period would see either some increase or a significant increase in assets invested in actively managed funds.
The survey also showed 24 per cent of advisers thought inflows to passive mandates would decrease in the near future while a mere 9 per cent thought passive funds would see an increase.
This contrasts the latest Morningstar figures — covering some institutional funds, direct to consumer inflows and discretionary management data as well as advised flows — which suggested investors had fled active management to the tune of £3.9bn and instead piled £3.15bn into passive equity mandates.
Mark Fox, NMG Principal Consultant said, “The Covid-19 crisis is likely to see a significant switch in equity asset allocations.
“Passive investing has been growing strongly over the past few years, but advisers are now looking to active managers to protect clients’ capital in the event of further market weakness and pick up bargains that will outperform into the eventual recovery.”
Mr Fox said active managers had the advantage of having the discretion to hold cash, while index funds were fully invested. Cash can act as a buffer against market falls.
Alan Steel, chairman of Alan Steel Asset Management, said his firm did not have any significant holdings in passive funds.
He said: “We do believe strongly that, as in other aspects of life, it’s worth finding the top 4 per cent and paying for it.”
Mr Steel added his biggest funds had outperformed over the last five to 10 years and most had protected well against the indices over the last “horrific” three months.
Active fund management, in my opinion, is only consistent in delivering underperformance and the idea that active fund managers do better in a falling market is not backed up in realityPaul Gibson, director at Granite Financial PlanningAlistair Cunningham, financial planning director at Wingate Financial Planning, said the decision to invest actively or passively was “driven by client objectives” and not any market conditions.
But he added: “It does make sense that an active investment strategy can work better when markets are under stress, but the converse argument would work on the basis that markets are always efficient.”
However, Paul Gibson, director at Granite Financial Planning, and Darren Cooke, chartered financial planner at Red Circle Financial Planning disagreed.
Mr Gibson said active fund management was “only consistent” in delivering underperformance while Mr Cooke said he would not be moving clients into active funds.
Mr Cooke added: “There is a mounting body of evidence that active managers do not add value in excess of the fees they charge and now we find it is also true in the time active management is supposed to shine, a market crash. So why anyone would move from passive to active is beyond me.”
imogen.tew@ft.com
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