Declining inflows into passive investment products should not be interpreted as a signal that the trend away from active management in Australia is over, warns Tria Investment Partners.
In a 'Trialogue' note to clients, funds management consulting firm Tria Investment Partners noted that passive funds under management (FUM) grew by 116 per cent in the four years to March 2015, while active FUM grew by 17 per cent.
Passive FUM grew from $45 billion in March 2011 to $97 billion in March 2015, while active FUM grew from $451 billion to $528 billion over the same period, said Tria.
However, a look at passive inflows between 2011 and 2015 indicated that Australian equities, fixed income and global equity were all trending downwards.
The exception was passive multi asset inflows, which are up 40 per cent since March 2011 – something that could be explained by the movement of funds into MySuper products, said Tria.
But the the overall decline in passive inflows does not necessarily mean active managers can "breathe a sigh of relief", said the firm.
"Flows into passive global equities strategies, at 20 per cent of the total global equity flows, are still high after falling from a 2011 high of close to 30 per cent," said Tria.
"And it isn’t seeing anywhere near the fall that fixed income is experiencing. [Passive] Australian equities has experienced a rapid rise, from 11 per cent in 2010 to a peak of 18 per cent in 2013, and is now just taking a breather."
To better gauge the trend to passive investing, it is worthwhile looking offshore, said Tria.
"In the US, passive investing is big, accounting for more than 30 per cent of total fund assets in June 2015," said Tria.
"The story is similar in the UK (22 per cent in 2013). So the dips in the proportion of inflows going to passive in the last couple of years might be less instructive than the trend and indeed we could have some way to go.
"We don’t see the key drivers of growth in passive investing – the demand for simple, transparent, low-cost exposure – changing any time soon.
"Retail and institutional investors alike will continue to target lower fee budgets as macro trend drivers such as regulatory pressure, increasing engagement with super and disruptive market entrants (among others) place ongoing downward pressure on fees.
"All of which suggests that the relative decline in inflows to sector-specific passive strategies recently is not evidence of a longer-term trend," said Tria.
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