Speaking in Sydney on Friday, Ariel Investments chief investment officer Rupal Bhansali said the new "Trump agenda"-driven macro-economic environment is likely to favour active management over passive investments.
Key Trump administration proposals including the recent executive orders, changes to Obamacare, the immigration ban and potential changes to the Dodd-Frank Act have brought "greater uncertainty and volatility to many sectors", Ms Bhansali said.
"Passive investors may find they have been penny wise and pound foolish by unduly focusing on low costs at the expense of higher risks," she said.
"I think passive has become a very crowded trade of late. Chasing what is in vogue has never been a successful recipe for securing long-term returns but instead often proves to be a precursor to large losses or underperformance," Ms Bhansali said.
This week saw the release of the S&P Dow Jones Indices SPIVA scorecard, which found the vast majority of active managers have failed to beat their benchmarks in recent years.
While acknowledging the "bottom decile performance" of active management in recent years, Ms Bhansali said outperformance of passive or active management is "cyclical, not secular".
Since 1970, she said, the percentage of US equities managers outperforming the S&P500 has cycled between 70 per cent and 10 per cent – and we are currently at the bottom of a trough.
"Studies have shown dramatic reversals occur when the active style suffers bottom decile performance versus passive for several years, and vice versa," Ms Bhansali said.
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