LOOKING BACK A FEW YEARS IT WOULD HAVE BEEN SAFE TO ASSUME THAT PASSIVE FUND MANAGEMENT COULD BY NOW BE STRANGLING ITS ACTIVE COUSIN. FOR EXAMPLE, HYMANS ROBERTSON IN MAY ADVISED THE LGPS (LOCAL GOVERNMENT PENSION SCHEME) TO SHIFT HALF OF THE £179BN OF ASSETS TO PASSIVE INDEX TRACKERS TO SLASH COSTS, HIGHLIGHTING THAT IMPROVED PERFORMANCE GENERATED BY “ACTIVE INVESTMENT MANAGERS IS, ON AVERAGE, INSUFFICIENT TO OVERCOME THE ADDITIONAL COSTS OF ACTIVE MANAGEMENT.”
However, in spite of this and numerous other examples, the purported shift to passive does not appear to be the whole story: active management is still going strong. Figures show sizeable inflows into active management in the US. Demonstrably, in the latter FT article below, active management is noted to be in bafflingly good health. Furthermore, the UK active managers are doing well – from the larger managers such as Henderson, through to the specialists. High quality active boutiques are being bought by consolidators. So if a fund can demonstrate genuinely sustainable alpha generation, there is an appetite for this – Neil Woodford’s recent venture and the likes of Fundsmith, are testament to this appetite.
You can read the FT article ‘Alarm bells ring for active fund managers – FT – May 11, 2014’ by clicking here.
You can read the full FT article ‘Active management industry in bafflingly good health – FT – May 4, 2014’ by clicking here.