Active managers time is coming: Moore

Passive managers’ luck may run out over the coming years, one fund manager says.

Saturday, July 8th 2017, 1:59PM

In a new episode of Good Returns TV, Paul Moore, of PM Capital, said while passive investing dominated market flows at present, no one seemed to have considered that those investment decisions were being made without any reference to asset valuations.

“That’s crazy from an investment perspective,” he said.

“What typically happens is when you have the majority of flows going to one particular sector or asset category, the majority of investors usually have a bad experience from it.

“My thought process is that passive is getting to peak momentum. When you get that flow, it distorts asset prices... it should throw up more opportunities for active managers.

“But the investment community as a whole don’t realise they are heading into suboptimal outcomes, potentially.”

He said the maximum amount of investment flow was going into passive investment vehicles at a time when the potential returns were most subdued.

Low interest rates had boosted asset prices, which helped passive investors, he said. But that could change over the coming years as interest rates started to head up more seriously.

“If you just want general market exposure, take a passive fund. If you want a bit better than the market and to be a genuine investor, then you’ve got to be active.”

Some investors had turned to passive options because many of the funds that were billed as active had been diluted down to “passive in drag”, he said.

Passive managers potentially had the most to lose to roboadvice and other technological offerings.

Good active management was about more than just numbers, but “the middle part of the industry” could be replaced by computers.

“I think there will be a flow back to active,” Moore said.

To download as an audio podcast, click here

Also available on SoundCloud

To read the full transcript, click here

Tags: Active v Passive funds management interest rates investment PM Capital roboadvice