ActiveJul 29 2021

Investors place more trust in active management

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Investors place more trust in active management

Investors have more confidence in active portfolio management than passives when it comes to achieving their objectives, according to research from Quilter Investors.

The firm found 54 per cent of investors would prefer knowing their portfolio was run by a team of professionals, compared with 8 per cent who said they felt comfortable letting a computer run their money.

This was true even when considering costs, with passive investing tending to be cheaper than its active counterpart.

The research was conducted between May 27 and June 1 and surveyed 1,041 people with a minimum of £60,000 in investable assets.

Danny Knight, head of investment directors at Quilter Investors, said given the active versus passive debate has been raging for years it was interesting to see investors had considerably more confidence in active management.

“We are at a point in markets where we feel active management should thrive. Inflation and interest rate concerns are hampering bond yields, while we appear to be undergoing somewhat of a rotation in performance drivers for markets. 

“As a result, actively managed portfolios have a great opportunity to add real value to clients by offering flexibility and being able to capture style changes as they happen," he said.

But he added passives still had a place within portfolios.

“There are a number of passive solutions that will give investors exposure to markets where the probability of an active manager outperforming is low, or where there are shorter term tactical opportunities."

Ben Yearsley, investment consultant at Fairview Investing, said: "I have been saying for a while that it could be a good period for active as investors require more differentiation now.

"It's also cyclical. We have had a long period of the mega caps (especially in the US) dominating and prices have simply got too high on many areas leaving investors to look elsewhere."

He added there is also the ESG angle to consider. "I don't think passive has addressed this well yet and that's another positive story for active."

He explained: "Passive and trackers aren't dealing with ESG considerations well - you can't really when mimicking an index whereas active funds are embedding ESG considerations into their processes."

Active vs passive

The active versus passive debate has increasingly swung in active investment management's favour in recent months.

For much of the past decade, between the end of the financial crisis and start of the pandemic, both bond and equity markets generally rose in value from the lows of the immediate crisis period, and passives performed strongly.

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