For the one-year period through the end of August, MSCI's U.S. Minimum Volatility index returned 7.14% while MSCI's USA index returned 0.53%.
“In times of volatility, what you see, even more so, are clients using passive (vehicles) in more active ways,” said Ron Bundy, Seattle-based CEO, benchmarks, North America, at FTSE Russell.
Mr. Bundy noted that a FTSE Russell survey of global asset owners, conducted in January and February 2015, showed that 67% of asset owners have evaluated or are currently evaluating low-volatility smart beta strategies. The survey also shows that 71% of asset owners that have a smart beta allocation are using a combination of two or more different strategies.
“What we're seeing for institutional investors is the increased use of smart beta in different ways. The usage is getting more sophisticated,” Mr. Bundy said.
Jamie Farmer, managing director, index investment strategy at S&P Dow Jones Indices LLC in New York, said he sees increased opportunities in which passive vehicles can be “used by active managers to apply their particular abilities. If you have a view on technology, on biotech, on real estate, but it's not necessarily a high-conviction view, there's an ability to implement that view using passive vehicles.”
Malvern, Pa.-based Vanguard Group Inc. was in second place on P&I's ranking with $2.47 trillion as of June 30, an 18.6% increase, followed by State Street Global Advisors, Boston, which saw a drop of -1.4% to $1.94 trillion.
Assets of $464.9 billion kept Northern Trust Asset Management, Chicago, in fourth place for the 10th straight year; followed by New York-based Bank of New York Mellon, which ranked fifth with $367.8 billion, its ninth year in that spot.
For the year ended June 30, $4.46 trillion was managed in U.S. equity, a 6.1% increase from the year-previous survey; assets managed in international equity rose 5.8% to $2.15 trillion; and $730 billion was managed in global equity, up 2.9%.
For the one-year period, the Russell 3000 index returned 7.29%; the MSCI World index, 1.43%; and the MSCI EAFE, -4.22%.
Asset owners might question the ability of active managers to outperform the index returns.
Mr. Farmer explained that dispersion, a measure of the difference between the index return and the returns of underlying holdings, was close to historically low levels during the past year. With an unusually narrow gap between the best- and worst-performing equity holdings, there were fewer opportunities for active managers to outperform their respective benchmarks through stock selection.
According to the midyear “S&P Indices vs. Active Funds U.S. Scorecard,” published by S&P Dow Jones Indices, active managers in most domestic equity market capitalizations underperformed their one-year benchmarks as of June 30. Measured against the S&P 500, 65.34% of active large-cap managers failed to beat the broad index and 58.52% of active small-cap managers underperformed the S&P SmallCap 600. Active midcap managers had better results, however, with only 48.21% underperforming the S&P MidCap 400. SPIVA's rolling five-year analysis shows 78.36% of active managers across all domestic equity market capitalizations underperformed the composite benchmark and 75.02% underperformed for 10 years.
“As a firm, we do believe that active management is worth doing — if you do it properly. But are you getting enough alpha for what you're paying?” said Kim Gillett, manager research consultant, Towers Watson & Co. in New York.
“We've been a strong proponent of smart beta management,” Ms. Gillett said. Towers Watson looks for “strategies that are going to perform well over a long time horizon” with “a fee that reflects the nature of the process,” she said.
As with equities, the majority of active fixed-income managers in most categories underperformed their one-year benchmarks as of June 30.
Data from S&P Dow Jones Indices show 98.82% of active long-duration government funds underperformed relative to the Barclays Capital Long-Duration Government bond index, while 90.43% of emerging market fixed-income funds underperformed the Barclays Emerging Markets Debt index and 82.93% of investment-grade long-duration funds failed to beat the Barclays Long-Duration Government/Credit index. However, a majority of active global fixed-income funds outperformed Barclays' Global Aggregate index, with only 30.67% underperforming for the year ended June 30.
“You still see a debate in the industry about active vs. passive. FTSE Russell believes that, in the end, all investors are active investors. They're still, at the end of the day, making active decisions in their portfolio,” Mr. Bundy said.
Domestic fixed-income assets saw the largest percentage of growth for the year, rising 13.1% to $1.19 trillion during the one-year period; and global/international fixed income rose to $665 billion, a 1.1% increase.
“Fixed-income products are growing much more rapidly as a percentage. It's an area that I think clients are going to have an increased focus on due to innovation in that space. And ETFs are a natural wrapper,” said FTSE Russell's Mr. Bundy.
Barclays' U.S. Government/Credit index returned 1.69% for the year and the Citigroup non-U.S. World Government bond index returned -13.49%.
Assets for the top 10 managers of exchange-traded funds/exchange-traded notes increased 8.5% as of June 30, to $2.14 trillion. BlackRock led that ranking with $1.08 trillion, followed by Vanguard with $470 billion and SSgA with $422 billion.
U.S. retirement plan, foundation and endowment assets under indexed management by the top 25 managers rose 3% to $2.85 trillion in the year ended June 30. BlackRock topped the list with $887 billion, a 5% increase from the previous year, followed by Vanguard's 15.2% increase to $611 billion, and SSgA's decline of 1.7% to $607 billion.
The passively managed U.S. defined contribution assets of the top 25 managers grew 7.8% to $1.66 trillion, while U.S. defined benefit assets of the top 25 managers fell 2.7% to $1.08 trillion. Vanguard managed the most defined contribution assets with $560.2 billion, while BlackRock topped the list of defined benefit managers with $372.5 billion in indexed assets under management.
Assets among the top 25 managers of U.S. institutional tax-exempt indexed assets rose 2.8% to $3.29 trillion as of June 30. BlackRock topped the group with $911 billion, a 4.8% increase from the previous year, followed by Vanguard with a 17.1% increase to $691 billion, and SSgA with a 4.7% decline to $658 billion.
