Managers are particularly bullish on active management strategies compared to the passive approach. However, this is not necessarily an “either-or” scenario. Active and passive strategies often co-exist within a diversified portfolio, depending on the type of assets and the particular needs of the investor. The challenge for active managers is to demonstrate value to investors during these volatile times.
Two-thirds of managers predict that demand for active investments will increase in the coming year, while 36% expect a decline in demand for passive strategies during this time (43% for Canadian managers and 25% for those in the UK/Europe).
- 2 out of 3 managers
forecast higher demand for active strategies
Change in Investor Demand
Mixed Reviews
A report by Deloitte1 examined the growth rates of assets under management (AUM) in the investment management industry over the decade ending in 2019 and found the performance of active equity managers to be mixed:
- Global private capital has shown favourable performance and AUM growth over the past 10 years
- U.S. passive investments have delivered strong returns and growth, continuing to take market share
- Active Japanese managers have outperformed their benchmark by 1.2% annually; similar to the challenges faced by their counterparts in the U.S., European and Australian equity managers trailed the benchmark by 1.5% and 0.8% respectively on an annual basis over the past decade
Not Necessarily “Either-Or”
Both active and passive strategies are likely to have a role to play within a diversified portfolio. For example, access to illiquid private markets—increasingly popular as managers look to generate additional income in a low interest rate environment—generally aligns with an active strategy. And investments in emerging markets tend to require an active approach as the returns from a select group of companies in these markets often outperform the entire index. On the other hand, passive management generally works best for liquid, well-known holdings such as stocks in large U.S. corporations where information about these firms is widely available.2
Diversified portfolio = active + passive
Passive funds and private capital continue to outperform and gather assets (USD trillion)
Sources: ICI Factbook 2020; BarclayHedge; Preqin; S&P Global Market Intelligence; reproduced from Deloitte 2021 Investment Management Outlook
Note: Size of the bubble indicates 2019 AUM of the investment vehicle in USD trillion
Both passive and active investments have a role to play. They are not mutually exclusive. It’s about putting the right pieces together to drive better client outcomes.
- Jordy W. Chilcott, Executive Vice-President, Wealth Strategy and Enablement, Wellington-Altus Financial Inc., Canada
We were onboarding a new client and they said to us, ‘I don't have the time to do it (investing) myself. It seemed easy, but it's not. There's a lot of volatility, and I prefer to get some advice.’ And so, that's one part of the demand for an active strategy.
- Jim Bantis, Executive Vice-President, Client Wealth Management, Gluskin Sheff + Associates Inc., Canada
We are forecasting an increase in demand for actively managed investments. The ETFs that we are planning to launch will serve that market.
- Darryl Workman, Senior Vice-President, Operations and Administration, Guardian Capital LP, Canada
1 Deloitte, 2021 Investment Management Outlook
2 Warton Executive Education, Active vs. Passive Investing: Which Approach Offers Better Returns, 2021
