Nearly 70 per cent of US professional investors look to active managers for capital protection, according to an MFS Active Management Sentiment study.
The survey revealed that 63 per cent of professional US investors expect an increase in market volatility over the next 12 months. Irrespective of whether market volatility over the past month is temporary or a sign of things to come, 70 per cent of professional US investors surveyed call protecting capital in down markets one of the most important attributes, when considering an active manager.
The survey
The study was conducted by research firm CoreData between April and June this year, and includes insights from 1,083 financial advisors, institutional investors and professional buyers around the globe. It also includes 575 respondents in the US.
In the States, 63 per cent of those surveyed believed that actively managed strategies, work best in falling markets. Evidence supports their conviction. Over the past 25 years, the top quartile of active managers has added 7.6 per cent in excess returns in falling markets.
Downside risk management may garner more consideration from investors following the S&P 500 Index’s rise of over 200 per cent since the end of the global financial crisis in March 2009. Despite significant flows into passive investment strategies in recent years, only six in 10 investment professionals said passive investments have no ability to adapt in volatile markets.
Recognising active managers
Professional investors surveyed highlighted risk management, long-term conviction and research expertise as some of the most important attributes in identifying skilled active managers. In the US, 83 per cent of survey respondents indicated that a firm’s active risk management process as the most important trait of a skilled active manager.
When considering the merits of active management, particularly in light of recent market conditions, respondents called short-term thinking one of their top concerns. In fact, 68 per cent of survey participants worldwide said investors are too focused on short term investment returns (12 months). It’s not surprising then, that investors are willing to pay for strategies that can provide strong long-term results. In the US, 82 per cent professional investors surveyed said they were willing to pay more for out-performance over five years while 68 per cent said they are willing to pay more for managers who can outperform over 10 years.