Institutional investors anticipate volatility to not only continue into next year but also to grow further within equities and bonds, and they predict that the market will shift more heavily into active management as active funds double in 2022, according to a recent report done by Natixis Investment Managers.
The five themes that the 500 institutional investors surveyed reported were highest on their radar for 2022 are the role of the central bank and its decisions, COVID no longer hampering growth, the growth of alternatives as investors seek yields, ESG, and active management.
Despite negative headlines and findings regarding active fund performance earlier this year, seven out of 10 institutional investors surveyed reported their active funds outperforming benchmarks over the course of the last 12 months. The current portfolio allocation for the investors surveyed was 71% active and 29% passive, and predictions extending three years out found that investors anticipated portfolios to continue with a 70/30 split that favors active.
Most institutional investors reported that they prefer active funds because they allow them to gain better risk-adjusted returns (70%) as well as better risk management (51%), a key concern given volatility. Of those surveyed, 40% said that they prefer active funds because of the flexibility they offer and their ability to respond to changing market conditions and trends as well as short-term market movements.
The investors cautioned that the big flows into and out of passive funds increase volatility broadly across the market, and 51% believe that it has added to systemic risk. Institutional investors also largely believe that the general reliance on passive funds disregards the fundamentals in favor of ease of investing (58%).
Next year will most likely bring more specifically targeted thematic ETFs, particularly as ESG investing and cryptocurrencies are both anticipated to grow. Both of these are areas in which active management thrives, and the combination of the increasing popularity of actively managed ETFs alongside high priority or popular thematics for investors leaves potential for active ETFs to grow their market share in 2022.
Active management is poised favorably moving into next year. T. Rowe Price, an active management firm, currently offers eight actively managed ETFs with a variety of strategies for investors to align their risk exposures and investment goals.
The firm brings a bevy of experience and research to its products, with portfolio managers averaging over 20 years in investing each, as well as over 400 investment professionals dedicated to researching companies within ETFs.
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