In a unique market cycle recently characterized by greater volatility, two reports reconsider active management and the traditional asset allocation mix.
After fees, active investing typically doesn’t outperform passive, as is well documented by the S&P Indices versus Active reports (a.k.a. SPIVA).
However, in an environment of low interest rates and high valuations for traditional assets, “downside risks are mounting,” noted a report from Geneva, Switzerland-based Unigestion, released Friday. As a result, active managers, with their focus on fundamentals and risk management, may be better placed than passive managers to ensure downside resilience and deliver returns in volatile markets, the report said.
At the same time, active management must up its game if it wants the opportunity to capture alpha and make a difference to investors.
To deliver better outcomes, active managers are embracing new technologies, such as machine learning and artificial intelligence, the report said. And those who allocate capital responsibly to finance growth in a sustainable way are part of an important secular trend toward “more purposeful capitalism,” it said.
Active managers are also finding new ways to replicate the role of traditional assets. The need for new sources of return and diversification is driving the development of alternative risk premia strategies, the report said.