Multi-asset and alternative active managers beat the rush to passive


Multi-asset and alternative funds are bucking the trend of the move to passive investment, seeing large inflows last year into actively-managed strategies.

Investor preference for active management of multi-asset, or allocation, and alternative funds meant market share in the open-ended space for European non-index funds remained relatively unchanged in 2015, despite the rise of exchange-traded products, according to Morningstar’s 2015 Global Asset Flows Report.

Passive funds took 27 per cent of all flows into European open-end funds and ETPs combined last year, up from 18 per cent in 2014, according to the report.

However, multi-asset and alternative funds are the only sectors going against the trend to passive, with investors showing strong preference for actively-managed strategies in the sectors.

Globally, multi-asset funds saw the second largest net flows, after equities, at $171bn, with Morningstar stating that they appeal to investors as an “all-in-one, easier-to-use, diversified solution”. Equities saw $305bn net flows globally for the year.

Net European inflows for both active and passive multi-asset products were €147.9bn, while alternative funds recorded €80.2bn of inflows. Together the two sectors gathered 65 per cent of all inflows to European long-term funds during the year, marking them as the fastest growing sector.

Volatile equity markets and sluggish bond returns drove European investors to seek returns and stability in multi-asset and alternative funds, the report said, in part due to their lower risk tolerance than their US counterparts.

Investors prefer active managers for funds in these categories, possibly because investors consider the expertise of an active manager is more valuable for riskier, more esoteric strategies, says Morningstar.

Investors may also believe active managers are better at tactical asset allocation than individual security selection, the report adds.

Total asset flows for last year were down on 2014, with estimated net flows in Europe of $170bn in 2015 compared to $195bn the previous year.

Blackrock’s iShares dominated the European ETP landscape with inflows of €29.3bn, and also led the field on the open-end side with €23.5bn of new assets. Aberdeen, Franklin Templeton and M&G saw the largest outflows.

Global net flows for 2015 also dropped and were estimated at $949bn, compared to $1,410bn in 2014.

“2015 brought growing uncertainty for markets worldwide, fuelled by changes in monetary policies in the US and Europe, slowing economic growth around the world, and slumping commodity prices, especially oil,” says Alina Lamy, senior markets analyst for Morningstar.

“Accordingly, inflows were lower in 2015 than 2014, and total assets decreased as global markets posted negative returns.”