Institutional Asset Manager Newsletter 19.05.23

Getting active

A healthy body equals a healthy mind, yet government figures released this week reveal almost one in five UK adults are not doing any form of physical activity.
No wonder then that three-quarters of those responding to the same survey report feeling anxious.
The government is calling on the population to get active to alleviate negativity, claiming it will lead to reduced stress and overall better health.
Such messages sound familiar to those we report on IAM this week, although the calls to get active relate to improving investment portfolio performance rather than mental health.
Charles White Thomson, CEO at Saxo UK, says that "active management, which includes long only and hedge funds, is a key part of a stable and healthy financial ecosystem", noting that the current volatile and unpredictable markets play to the active manager’s strengths.
He says the "goldilocks era with the sense dulling free money has created lethargy" and calls on investors to shake of their lazy reliance on passive and embrace a more active portfolio that reflects manager skill.
Taking the point further, he hits back at the move to AI-driven portfolios arguing that no computer can ever outperform an experienced human.
"The core ingredient is their life experience which includes a variety of wins, defeats and pyrrhic victories – they are my ‘Chat GPT busters’, they are my managers whose experience has the potential to outwit AI. They have the ability to cut through the noise and harness their wisdom," White Thomson says.
Also espousing the virtues of active management on IAM this week is Bfinance’s Robert Doyle, specifically when investing with the small cap universe.
The consultancy’s Senior Director specialising in equity manager selection says "a majority of global [active] small cap managers have outperformed the MSCI ACWI Small Cap since 2009 on a rolling three-year basis" even when taking account of an indicative 75bps management fee.
Yet investors -like with most of the UK population – are failing to appreciate the need to get active, with many of them shunning allocations to the small cap sector entirely.
"It is extremely rare to find a dedicated small cap manager [in institutional portfolios]. The trend to passive global equity strategies has squeezed out niche and regional strategies," he says.
However, the get active advice looks on shaky ground according to Morningstar’s 2023 European Active/Passive Barometer, which analysed nearly 26,000 unique active and passive funds across 2022, accounting for approximately EUR5.1 trillion (GBP4.5 trillion) in assets.
The barometer found that at the end of the calendar year, only 29 per cent of active equity managers were able to both survive and outperform their passive peers.
So as ever while the urge to get active makes sense, success relies on finding the right manager, which is always easier said than done.
Gill Wadsworth, Editor

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