One-third of institutional investors worldwide that were surveyed by Northern Trust said passive strategies account for 40% of their equity and fixed-income investments.
Also, 40% of investors said they would increase their passive holdings above 40% in three years.
The survey was reported in a white paper, “Customized Beta: Changing Perspectives on Passive Investing,” published by Northern Trust Monday.
Of the 121 investors surveyed, 40% also identify customized beta, an index tailored specifically to a given client, as relevant to their current portfolio construction models. However, the perceived benefits of customized beta vary based on geography.
While North American respondents consider the strategies as a means of exploring new markets, European respondents believe they boost transparency and Asian respondents see them as a tool to increase efficiencies within portfolios.
Investors also spend more time focusing on the quality of managers than the quality of benchmarks.
“Investors around the world are reframing their thinking about their funds' objectives, with an overwhelming 84% from our survey saying that meeting their investment objective is more important than outperforming a benchmark,” said John Krieg, managing director, asset management, Europe, Middle East & Africa region, , in a Northern Trust news release.
Of all respondents, 63% responded that index selection occupies less than 10% of the time they devote to investment activities, while 82% devote 10% or more of their time to manager selection.
Northern Trust surveyed 121 institutional investors, primarily pension funds, with a total of more than $500 billion in assets, in August and September.
Northern Trust managed $205.4 billion in worldwide passive equity and fixed income as of Dec. 31, 2010, according to the Pensions & Investments Research Center.
The white paper is available at www.northerntrust.com/morebeta.
