Active Management Important to Investors

Professional U.S. investors say protecting capital in down markets is one of the most important considerations when selecting an active manager.

Sixty-three percent of professional U.S. investors foresee an increase in market volatility in the next 12 months, according to the MFS Active Management Sentiment survey.

Seventy percent say protecting capital in down markets is one of the most important considerations when selecting an active manager, and 63% say actively managed strategies work best in a falling market. Evidence bears this out, MFS Investment Management says; over the past 25 years, the top quartile of active managers have achieved an average of 7.6% in excess returns in bear markets.

Despite significant flows to passive strategies since the financial crisis of 2008, only 38% of professional investors are highly confident in passive management.

When selecting an active manager, 83% of investors in the U.S. say risk management is the most important trait, followed by active security selection (67%). Asked about their concerns regarding active managers, 68% of respondents said being too focused on short-term investment returns of the past 12 months or less. In the U.S., 82% of investors said they are willing to pay more for outperformance over five years, and 68% are willing to pay more for managers who can outperform over 10 years.

Sixty percent of U.S. professional investors said that actively managed strategies will continue to play a significant role in their portfolios in the future, and U.S. investors have allocated 77% of their portfolio assets to active investment strategies.

“At some point, we will see additional volatility, and that creates opportunity for active managers to identify risks and generate alpha,” says Joe Flaherty, chief investment risk officer for MFS Investment Management. “Downside risk management is part of the value proposition that active managers can deliver through research and security selection. Many active global managers have significantly outperformed in falling markets. A passive strategy, by definition, takes full market risk. In recent years, strategies that straddle the line between active and passive have become increasingly popular with investors.”

CoreData conducted the study for MFS Investment Management, based on a survey 1,038 financial advisers, institutional investors and professional buyers around the globe, including 575 in the United States.