iShares has published European research examining how investment professionals are approaching the question of whether and how to blend active management and indexing.
The study found most investors share the view that the blending of active management and indexing will continue to grow and it is no longer a question of active versus passive.
Thirty five European businesses with combined assets under management of approximately EUR2.4trn from across the wealth, discretionary and advisory market place took part in the study to identify how they approach investing as well as the major catalysts and obstacles to blending active and index products.
Three investor identities emerged from the research:
• Actively active: 30 per cent of total respondents focused on generating alpha for clients through stock selection with a high level of conviction in active management.
• Embracing blending: 25 per cent of total respondents are adopting indexing for tactical exposure and moving towards a comprehensive approach to blending.
• Agnostic allocators: 45 per cent of total respondents consider asset allocation as the key driver and the type of vehicle (be it active or index) used for implementation is a secondary concern.
Client demand, cost, market dynamics and regulation were identified as the key catalysts that have driven changes in the industry so far and are likely to accelerate the pace of blending in the future.
Stephen Cohen, head of investment strategies and insights for iShares EMEA, says: “Indexing, through index mutual funds or ETFs, now accounts for over 11 per cent of assets under management in the European asset management industry. This growth has contributed to the increased combination of active management and indexing within blending investment strategies. Our findings, however, show there is no single answer to blending. While asset class efficiency was identified as the most common starting point for blending decisions, there are many factors driving current practice, in particular investment philosophy, client demand and the market cycle.”