Neptune chief executive Robin Geffen has restated the case for active management, saying indices “will be disembowelled by changes to technology” in the next decade.
Geffen, who claims the fund management group is ahead of the game when it comes to technology, says passive funds don’t distinguish between good and bad companies, adding there are indices that are “holding a whole lot of dinosaurs”.
“A lot of companies that are in the indices now will not exist in 10 years’ time,” Geffen says. “They will either die a long painful death or cease to be relevant.”
Chief investment officer James Dowey says that as companies struggle to keep pace with advances in technology, indices will be “smashed apart”.
Companies “on the wrong side of things” will “rip the heart out of passive management”, Dowey adds.
Technology such as smartphone-based car-sharing service Uber is having a big impact on the economy, he says,
“It is a scary time,” Dowey says. “We are seeing the ‘Uberisation’ of the economy, and Uber is only a sub industry. There is no reason that can’t happen across the board.”
Dowey says robotics is an area to watch as sensor technology progresses, facilitating robotics that are far more sensitive.
“We understand we have got to be on top of things over the next five to 10 years,” he says.
Geffen is a strong proponent of active management, with Neptune becoming the first group to publish its active share – a metric of how much a fund differs from its benchmark – at the start of this year. He also called on the FCA “to insist that all fund groups make this disclosure to their investors”.
“We were the first people to publish active share in February this year and quite a lot of people have followed. If investors don’t know the active share then they don’t have the judgement of whether the fund is an index hugger or not,” Geffen says.
“There has been a massive move to passive investing to duck making decisions disguised as an efficient and cheap way of investing,” he says. “But you get what you pay for. If you go to buy a car cheaply you will get a Volkswagen cheating the system.”