Is Active Management Dead?
No, industry experts said today, but at least the ‘City dinosaurs’ might be phased out, but if you don’t have active managers you don’t have markets
Is active management dead? The high profile panel at the Morningstar conference today put on a good debate and concluded that both active and passive funds have a place, but at least the dinosaurs in active management might start to die out, to the benefit of retail investors.
Katherine Garrett-Cox, CEO at asset manager Alliance Trust, who is currently fighting private equity investors to keep hold of her business, said she was surprised at the sheer number of “dinosaur” investment managers exist today in the City.
“Maybe they take comfort from the fact it took 140 million years for them to die out. But we can’t wait that long [for City dinosaurs to die out],” she said.
Beware Star Managers
Garrett-Cox also said she shied away from the concept of star active managers, pointing to the “hugely disruptive” outflows from PIMCO and Invesco Perpetual when Bill Gross and Neil Woodford jumped ship.
“The reality is consistency is not a given,” she said. “Look at the UK equity sector and go back 20 years; just because a manager is in the top quartile doesn’t mean they will be in there the next. There’s only a 43 percent chance they will be the top quartile again. Fund managers go up and down.”
Nizam Hamid, head of sales at ETF provider WisdomTree Europe, said the star manager debate did not affect passive funds and that a lack of a “face” did not deter potential investors.
“What is the star of the show?” he asked. “It’s the product, the returns and the transparency: it isn’t about the stars and individual managers. It’s about adding value.”
Garrett-Cox and Hamid also clashed when the former argued that, in general, passives are simply acting as a momentum trade, which forces investors to “buy high and sell low” as expensive stocks in the index are swapped for cheaper companies. Hamid did not agree and said this is where financial advisers must play a part to educate their clients to invest wisely.
Debating High Fees
Helena Morrissey CBE, CEO at fund manager Newton and chair of the Investment Management Association, said that whatever active managers offer, they have to provide value for money.
She also spoke against everyone going passive: “[In that case] we would not be allocating capital to the up and coming future businesses, we would only be sticking with the ones doing well already. That is not good for society as we need to nurture future growth,” she said.
Garrett-Cox added there is a belief that nobody can offer true active management for annual fees of less than 0.75 percent a year, and that was just “rubbish”.
Mark Zinkula, CEO, Legal and General Investment Management, said there is always pressure on fund houses to lower their fees, but the most pressure at the moment is in the passive retail side.
“The passive active debate is overhyped,” he concluded. “We need both. If you don’t have active managers you don’t have markets.”