The debate of active versus passive investing has made way for discussions over how best to blend both types of strategy, according to a survey of 35 financial services companies released today.

The survey, commissioned by iShares, asked businesses with a combined AUM of approximately €2.5trn across the wealth management, private bank and discretionary management space, how far they had moved down the path of blending, if at all.

It found there were three broad identities among the professional investors: ‘actively active’, ‘embracing blending’ and ‘agnostic allocators’.

The 25% who were said to be ‘embracing blending’ said they adopted indexing (passive) for tactical strategies, this group was made up of 35% of total discretionary, 34% of advisory respondents and 20% of multi-asset institutional.

Meanwhile 45% of total respondents classed as ‘agnostic allocators’ said their main aim was to deliver alpha through asset allocation and the vehicle used for implementation of this was a secondary consideration. The bulk of multi-asset institutional allocators were in this category (75%) while a quarter of discretionary managers were.

The third group who were classed as ‘actively active’ accounted for 30% of total respondents and said they focused on generating alpha with active management and typically only used indexing for cash flow management. This category had a high level of conviction in active management and stock selection and was made up of 40% of the discretionary respondents and 66% of the advisory group.

Drive to blending

The major drivers for a greater focus on the blending of active and passive strategies have been client demand, market dynamics and cost and regulation, according to the iShares report.

Client demand for lower cost solutions that they wish to deliver net returns within a given risk tolerance level and regulation for advisory businesses in the UK forcing change in revenue models that historically favoured active management are cited as two big catalysts for the increase in blending.

But some obstacles do still exist, chiefly ingrained business models and the need to see a change in mind sets.

David Gardner, Head of iShares Sales EMEA, concluded: “Our clients often ask us how they can use active and index funds together in their portfolios, and unsurprisingly, how their peers are using them too.

“This deep qualitative research was undertaken to allow investors to identify not only where on the blending scale they currently sit, but where they need to be in the future to maintain a competitive edge.

“The conversation has long since moved on from active vs passive, it is now a question as to what extent investors are incorporating both styles into their portfolios and the drivers that have brought this shift on.”


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Per Olov Jansson
CEO Cardea International


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