20/20 Vision: Will active managers turn the tide?

Changes in market volatility have been aggressive and intense this year. The economic impact of Covid-19 was evident as the market dipped lower than its previous record in 2008. Whilst the favour towards passive investments is growing rapidly and appears to be a longer term trend, now is the time to turn to active management and for active managers to prove their worth.

20 July 2020

Changes in market volatility have been aggressive and intense this year. The economic impact of Covid-19 was evident as the market dipped lower than its previous record in 2008. Whilst the favour towards passive investments is growing rapidly and appears to be a longer term trend, now is the time to turn to active management and for active managers to prove their worth.

As the tide turns from the last decade of rising markets, low volatility and minor differences in performance of securities, Willis Towers Watson recently warned that investors need to “resist the urge” to concentrate on recent performance, and rather look at the natural cyclicality of active and passive management.

Pandemic-triggered levels of volatility lends itself towards active managers to apply their skills and respond quickly to shape the destiny of their portfolios. Research has shown that active funds outperform passive funds during periods of market turbulence with fund managers being able to conduct in-depth research into underlying securities and take advantage of key openings and undervalued stock when they present themselves. Access to a wealth of market data, research and analysis tools, a combination of perceptive judgement and industry expertise give active managers a platform to demonstrate clarity of vision, and the ability to stock pick their way through economic shocks.

In fact, in the month of May 2020, investors added £1.2 billion to active channels in comparison to passive funds where £1 billion was invested. Perhaps this is a turning point for active fund managers – one that is to be embraced.

However, of course, active managers and their ability to deliver outperformance will need to stand the test of time. That is why, at FE fundinfo, we reward active managers based on their alpha generation across their career history and active funds based on consistent outperformance with at least three years’ history. With 92% of UK fund selectors using research and ratings agencies to compare and assess funds, there’s no doubt the power of investment fund ratings has on influencing investment decisions. The simplicity of ratings allow investors to recognise performing funds and fund managers based on key metrics, a process generally scrutinised by investment professionals and analysts.

As new ratings enter the market, and investor objectives and values continue to evolve, it is important fund managers have a thorough understanding of how ratings are calculated and how they form a part of a fund selector’s due diligence process.

Stay tuned as we announce the FE fundinfo Alpha Manager award winners at our 2020 Visionaries of Fund Management virtual event on Thursday 30th July 2020. Nominees to be announced Thursday 23rd July 2020. For all event updates, click here.

For further information on our full suite of ratings and methodology, contact us now.