The survey also revealed:
• Plans intending to increase their active allocation cited confidence in active managers' risk management, the need to generate alpha, improved market conditions, the need to meet plan return assumptions and plan reallocations as the reasons.
• Plans intending to decrease active exposure cited high fees, disappointment with active management, concerns with risk management and underperformance as the reasons.
• 63.3% believe top active managers can consistently outperform indexes.
• 70.3% view their passive allocation as a complement to the active portion of their portfolio.
• 91% believe passive fixed-income strategies are not a good choice in a rising interest rate environment.
• 68.5% said declines in stock market correlations would not prompt a reduction in passive exposure in favor of active strategies.
The responses about maintaining or increase active management don't correlate with the respondents' use of passive fixed-income strategies during a rising interest rate environment, according to the survey.
Although 88% said passive fixed income is not a good choice in a rising interest rate environment, flows to the eVestment Alliance Passive Fixed Income universe have been positive over four of the past five quarters, according to the survey.
Colleen Denzler, Janus senior vice president and head of fixed-income strategy, said flows into passive strategies represent a bullish stance on interest rates.
“I think people know that something is going on with the Agg (Barclays Capital U.S. Aggregate bond index) because they see the durations (a measure of bond's sensitivity to interest rates) extending, but I don't think people widely know why,” Ms. Denzler said.
Jay Love, an Atlanta-based partner and senior investment consultant with Mercer LLC, said in a telephone interview that passive fixed-income benchmarked to the Barclay's Aggregate was “never theoretically an efficient investment strategy” but now makes little sense for passive investment because it is not well-diversified.
He said most investors are directing their investments to more targeted fixed-income indexes and letting managers “make intelligent decisions on the proper weightings ... as opposed to taking whatever the market gives you.”
“I'd be surprised if there was a lot of money flowing into the passive Agg,” Mr. Love said.
But Ms. Denzler cautioned investors to “be careful” putting their money into fixed-income indexes other than the BarCap Aggregate.
“If Treasuries continue to issue more debt in the long end, the long-government credit is going to extend, too,” she said. “You can't just blindly assume that the index, which just represents all the bonds in the marketplace, equals your risk.”
Gibson Smith, Janus co-chief investment officer of fixed income, said by moving away from a benchmark and to a more opportunistic position, “you have to have a lot of faith in the manager.”
“I think allocating to a passive strategy or to a benchmark-type strategy is a little simpler mindset because it's a set-it-and-forget-it, and I think for many investors it's just "I'll take what the market gives me,' assuming the index is the best proxy for the market,” Mr. Smith said. “But the index may not be the best proxy for their risk profile. I think that's where there is still some disconnect in the market.”