Strategies must deliver on goals
• Innovation helps to align active v passive objectives
Asset management finds itself at an inflection point. Startling research released by the S&P Dow Jones Indices showed that 99% of actively managed US equity funds sold in Europe failed to beat the S&P 500 between 2006 and 2016.
Unsurprisingly, this has thrust the “active versus passive” debate into the mainstream. “There’s certainly merit in investors interrogating whether their chosen approach has delivered on its mandate,” suggests Steven Schultz, Head of Investment Marketing at Momentum Investments. “The most important consideration in this regard is ensuring that their asset manager’s investment objectives align with their goals.”
Fortunately, innovation in asset management is helping to better align the two.
“By focusing on a specific investment goal, the discussion shifts away from the debate on active versus passive. Instead, it seeks to determine how both strategies can be combined to improve the probability of achieving an investor’s desired investment outcome,” he says.
Significant value can be derived from selecting a top performing asset manager and, more importantly, combining active and passive investment strategies to consistently — and at different points in the market cycle — deliver to meet investment goals, Schultz adds.
“This viewpoint promotes the adoption of the considered approach of outcomes-based investing; one where a systematic focus on an investor’s needs and requirements grows their wealth or savings to achieve the desired goal at a specified point in the future, while also managing the experience. With this approach, asset management no longer focuses on competing with others for the best peer-relative returns, or on making quick gains.”
And the way investors and asset managers achieve that goal is changing. Driven by the conscious investing movement, many asset managers are now looking beyond top performing asset classes to also include in their portfolios alternative investments such as renewable energy, sustainable agriculture or healthcare providers that service previously underserved markets.
“The value proposition in asset management is changing,” says Sheldon Friedericksen, chief financial officer at FedGroup. “With the rise of conscious, or sociallyresponsible impact (SRI) investing, investors are increasingly considering both the financial return and the measurable, beneficial social or environmental change an investment can generate.”
According to the Morgan Stanley Institute for Sustainable Investing’s most recent Sustainable Signals report, SRI investing is being driven largely by the millennial cohort, who are two times as likely as the overall investor population to invest in companies targeting social or environmental goals.
“This emerging group of investors view themselves as change agents, which is why SRI investing will need to play a more prominent role in the portfolios of the top asset managers,” says Friedericksen.
This will manifest in the types of companies in which funds choose to invest, be it through equities or direct investments, and will serve as a strategic differentiator.
“As capital becomes more constrained, retail investors will increasingly ask why they should invest with traditional returns-based funds and assume the risk, when they can now get a fair, often comparable return while also doing good for a cause they believe in.”
ASSET MANAGERS ARE LOOKING TO INCLUDE ALTERNATIVE INVESTMENTS LIKE RENEWABLE ENERGY