The majority of UK discretionary fund managers are backing active management over passive investing this year, despite the rising appetite for passive strategies, research by CoreData shows.
CoreData surveyed 92 DFMs over August and found 83 per cent of respondents think active investing is still the best way to approach the current market environment, especially after the Brexit vote.
Rowan Dartington Signature managing director Guy Stephens says passive investors have had a “torrid time” up until the EU referendum as they were fully weighted to the oil and commodity sectors.
He says: “This was quite an obvious situation for active managers to exploit and many did. Post the Brexit vote, US dollar earnings have significantly outperformed the rest of the market, which includes oil and commodities, while commercial property has been pummelled.”
Stephens adds: “Passive is fine for stable, momentum driven markets where the strong get stronger and the trend is your friend – but this is the antithesis of 2016.”
Elsewhere in the survey, 69 per cent of DFMs frequently refer to Brexit as their main concern for investments, followed by weak global GDP growth (55 per cent) and geopolitical instability (52 per cent).
7IM portfolio manager Ben Kumar says the Brexit vote and the drop in sterling have demonstrated how important foreign currency exposure can be as part of a diversified portfolio.
He says: “Mitigating risks that can potentially damage capital is a key reason for active management. No matter how good the historic modelling is, it cannot account for all future events. The UK has never negotiated an exit from the EU before, so historic valuation may not be a good guide to the future.”
Kumar says the rally in sterling might continue over time and there active management remains essential.
He says: “In the environment we are currently in, we feel that increasing sterling exposure in the portfolios following gains on foreign currency is a sensible strategy.
“The ability to mitigate bouts of volatility (or even profit from them) is very important to our end clients. The worst decision an investor can make is to bail out of the market. Helping clients to overcome the temptation to sell is a large part of active management too.”