New research, based on a survey of 500 investment professionals across 26 countries – including Australia – has revealed that with rates likely to remain higher for longer, 68 per cent of fund managers say markets now favour active managers.
Research conducted by Natixis Investment Managers (IM) revealed that while asset allocations to passive increased about 7 per cent over the past three years, fund managers currently allocate 64 per cent of assets to active investments and 36 per cent to passive, with the former set to rise.
Natixis IM underscored a resurgence in active investments as market dynamics shifted, revealing that 58 per cent of managers reported that active investments on their platforms outperformed their passive offering, marking a significant departure from a decade dominated by low interest rates, minimal inflation, and passive strategies.
“With rates looking to remain higher for longer, 68 per cent of fund managers say markets now favour active managers. And given an uncertain outlook, 75 per cent believe active investments will be essential to finding alpha in 2024,” the global asset manager said.
“Should recession fears be realised, not only do 61 per cent of fund managers think it will show the inadequacies of passive investments, but 53 per cent also think investors who rely solely on passive are likely to learn some hard lessons.”
Natixis IM noted that, beyond beefing up active strategies, managers will likely focus on two other product structures to manage client investments – model portfolios and active ETFs.
The firm found that model portfolios are front and centre in product plans for 2024.
“Overall, 85 per cent of managers say their firms have some form of model offering available to clients. While most rely on proprietary models developed by in-house investment teams (65 per cent), a growing number are bringing on third-party model managers (26 per cent),” Natixis IM said.
“The mix could change significantly as over four in 10 managers (41 per cent) say their firm plans to expand their third-party model offering in 2024.”
The belief among managers is that models may help firms address a more turbulent market, with 66 per cent of managers noting that model portfolios offer an added layer of due diligence for clients. Overall, 81 per cent believe that model portfolios give clients a more consistent experience.
Moreover, one in two asset managers said their firm is finding a greater need for specialty models, with expansion plans said to be rife. The most common additions to model portfolios in 2024 include high-net-worth models (40 per cent), thematic models (40 per cent), and ESG models (40 per cent).
On active ETFs, Natixis IM found that 84 per cent of firms worldwide say they will maintain (61 per cent) or increase (23 per cent) their offering of semi-transparent ETFs in 2024. Semi-transparent ETFs are one of a few product structures in the active ETF family and are designed to allow managers to pursue alpha without exposing their actual holdings.
Fund managers see cost efficiency (61 per cent) as the prime benefit of active ETFs, but they are finding other advantages to the structure as well. Namely, more than four in 10 (44 per cent) said the structure makes it easier to access actively managed investments, while 42 per cent see it as a convenient way of accessing innovative investment strategies. Tax efficiency is another advantage for 34 per cent of selectors, as is intraday trading for 33 per cent.
