The rising popularity of passively managed index-tracking funds will not lead to the demise of actively managed funds Martin Davis (pictured), the chief executive of actively-managed Kames Capital, has predicted.
According to figures from Thomson Reuters Lipper, net flows into European passive funds in 2016 were the best for 13 years, despite an overall reduction in mutual fund net sales compared to 2015.
While passive investments accounts for a steadily increasing share of total assets under management Davis said he is confident that there is still a future for funds that are genuinely actively managed.
“Active management is not dead,” he says. “The asset managers facing a model change are those with funds that track the index and charge active fees for it.
“But pure active funds that consistently deliver what investors want will absolutely continue to have a place in portfolios, along with passive and even smart beta funds that can play an important role as well. I don’t think that situation is going to change anytime soon.”
Davis said he believes that active funds will continue to offer investors an attractive option particularly in specialist areas that are harder to replicate in indexed forms.
“If passives perform well during phases in the cycle, good stock pickers seize opportunities as they emerge, particularly in periods of elevated volatility when markets have been on strong runs and may be due a correction,” he said.
“Conviction managers who consistently deliver alpha will remain valuable, and we believe clients will continue to pay for their skill.”
Kames Capital manages £43.9 billion (€57.8 billion) from offices in Edinburgh and London.
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