Financial advisors have
generally favored active over passive investment management in client
portfolios and volatility and rising interest rates have made them keen as ever
on active strategies.
In a report by Natixis
Investment Managers published on Wednesday, 83 percent of U.S.-based financial
advisors surveyed said they believe the current market environment is likely
favorable for active portfolio management.
But that hasn’t translated
into a drastic change in how advisors are allocating client portfolios because
they already favored active strategies, according to David Goodsell, the
executive director of Natixis Investment Managers’ Center for Investor Insight.
Advisors who participated in
the annual survey said they allocated roughly two-thirds (67 percent) of client
portfolios to actively managed strategies and one-third to passive—a similar
finding to the survey in 2016 (66 percent). They also projected that
active management would account for 62 percent of allocations in 2021.
Goodsell said advisors,
and their clients, have pursued passive investments for their lower fees,
especially considering their relative performance through the recent bull
market. But most advisors (74 percent) believe individual investors are unaware
of the risks of passive strategies, according to the recent survey, and they
will need to convince them that now is the time for active management and to
effectively deliver it.
“I think it’s interesting,”
Goodsell said. “Given where markets are going, financial advisors are going to
need to sharpen their skills in the technical side of the business.”
Advisors and investors have
already shuffled money around since the start of the year. While passive funds
have gobbled up the lion’s share of flows in recent years, they were not immune
to the outflows from U.S. equity funds, Kevin McDevitt, a senior analyst at
Morningstar, noted in an April 16 report.
“Strikingly, U.S. equity
outflows were almost evenly divided between actively and passively managed
funds. Active outflows were nearly $11 billion, while passive outflows were not
far behind at about $10.6 billion,” McDevitt wrote. “March was also the second
consecutive month of passive equity outflows, after investors withdrew nearly
$8.3 billion from such funds in February. To give perspective, U.S. equity
funds haven’t had months with consecutive outflows since September-October
2009.”
In anticipation of continued
volatility and rising interest rates, the Natixis survey also found most
advisors see alternative investments becoming more important—80 percent said
they recommend alternative investments to clients and 31 percent said clients
are asking about alts more often than they did three years ago.
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