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Global uncertainty and higher interest rates are driving an interest in active strategies by fund selectors working with retail clients, which will accelerate into next year, according to a new study* from Rathbones Asset Management.
More than half (53%) of IFAs, discretionary fund managers (DFMs) and private banker fund selectors say they are moving significantly towards active strategies while maintaining core equity exposures due to continuing global uncertainty. That outweighs the 18% switching to defensive and tangible assets and the 29% going into cash and short duration bonds.
The attraction of active strategies is the ability of managers to pick sector winners such as defence and cyber security while avoiding companies with supply chains vulnerable to global uncertainty, according to the study with IFAs, DFMs and fund selectors managing around £234 billion for retail investor clients.
Higher interest rates and the growing gap between successful and unsuccessful companies is adding momentum to the switch. Nearly six out of 10 (57%) say they are feeling much more favourable towards active as a result compared with 39% who say they are slightly more favourable towards passive strategies.
Momentum will build into next year – almost all (95%) say they expect their allocation to active strategies to increase in 2027, including 13% who expect significant increases.
Tom Carroll, CEO, Rathbones Asset Management, said: “Current macroeconomic conditions, the geopolitical environment and extreme market concentration within Equity Indices is part of the reason for the switch to active management, but fund selectors working for retail clients also recognise the attraction of being able to pick sectors and winners within sectors.
“That is driving growing interest in active strategies, which is likely to continue into next year no matter what happens with current global issues.”
Rathbones Asset Management research shows fund selectors are most likely to use active strategies only in emerging market equities and corporate bonds and high yield debts where 42% questioned only use active. The same number do so in developed market large cap equities although 43% said they were passive only for this asset class.
Almost all (99%) IFAs, DFMs and fund selectors at private banks that were surveyed are concerned that passive growth trackers are over-exposed to companies with stretched valuations and 91% agree that some markets, such as small caps and emerging market debt, are unsuitable for passive indexing.
However, the survey found a third (33%) of fund selectors are very concerned about active managers who only deliver passive returns – so-called “index huggers”. A further 64% questioned said they were somewhat concerned about the issue.
The table below shows how the use of active and passive strategies breaks down across asset classes by IFAs, DFMs and private bank fund selectors. They are least likely to be active-only for Government bonds, gilts and Treasuries and most likely to be passive-only for commodities.
|
Asset class |
Percentage using active only |
Percentage using passive only |
Percentage using both |
Do not invest |
| Emerging market equities |
42% |
17% |
37% |
4% |
| Corporate bonds, high yield debt |
42% |
24% |
30% |
4% |
| Developed market large cap equities |
42% |
43% |
15% |
Zero |
| Global small cap equities |
33% |
35% |
27% |
5% |
| Real estate, REITs |
32% |
39% |
22% |
7% |
| Commodities |
31% |
48% |
19% |
2% |
| Government bonds, gilts, Treasuries |
29% |
28% |
38% |
5% |
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