Institutional investors have responded to market volatility by reallocating their passive assets into active strategies, says Natixis Investment Managers.
Results from Natixis Investment Managers’ Global Survey of Institutional Investors report has found investors are starting to question the returns offered by passive strategies, as the bull market seems likely to give way to more volatility.
The survey, which interviewed 500 institutional investors from around the globe, revealed 59 per cent of investors felt passive investing artificially suppressed volatility and distorted relative stock prices, while 63 per cent felt asset inflows into passive investing had contributed to systemic valuation risk.
“Three-quarters of those surveyed globally believe the same low rate environment that has helped propel market growth has also created asset bubbles for stocks (30 per cent) and bonds (42 per cent),” the report said.
“Considering a potential reversal in the monetary policies that have buoyed markets and likely interest rate increases, institutional investors project market volatility will be on the rise, as will the dispersion of returns among securities.”
In such an environment, investors were turning to active strategies for greater exposure to non-correlated asset classes.
More than three quarters (76 per cent) of institutional investors signalled the market environment would favour active management over passive this year.
Furthermore, more than half (57 per cent) of institutional investors expected active to outperform passive in the long run.
Natixis Investment Managers, Australia chief executive Damon Hambly said the ‘active versus passive’ debate would not diminish any time soon “as institutions have signalled a gradual shift towards active strategies”.
“The traditional arguments about the cost-saving potential of passive products are being challenged,” he said.
“For example, many institutions already see the long-term value of active management, and the access it brings to a broader range of asset classes.”
Although majority (90 per cent) of investors said low management fees was the biggest factor in selecting passive strategies, 75 per cent indicated they would be willing to fork out higher fees for the possibility of outperformance.
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