Active management is “returning to favour” as more investors view market volatility as a fertile ground for alpha opportunities.
A survey of 500 institutional-investor “decision makers” shows a fall in expected allocations to passive investments over the next three years: from 7% of portfolios in the 2015 survey, to 1% in the 2016 survey published today.
Volatility is a driver for this, said Natixis Global Asset Management (NGAM), which produced the research.
“In looking at the potential for increased volatility, nearly three-quarters (73%) of institutional investors believe today’s markets are more favorable to active managers, compared to 67% … in our 2015 results,” NGAM said in its Global survey of institutional investors.
It is revealed that although many institutions believe their return expectations are achievable, half of them expect to decrease return assumptions in the next 12 months.
The reason is the belief that alpha is getting harder to find as markets become more efficient. Yet 86% said active was better suited to generating alpha and 64% said it was better suited to generating risk-adjusted returns.
Respondents also give the advantage to active management for accessing emerging market opportunities (76%) and environmental, social and governance investing (75%).
Overall, institutions anticipated that they would increase allocations to alternative investments by 4% in 2017; increase equity allocations by 1.7%; and reduce fixed income holdings by 3.5%.
“While these adjustments may appear to be small, under the surface they may indicate a bigger transition in portfolio strategy,” said NGAM, again citing demand for active management as a result.
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