Money management executives are expecting that low market returns and high volatility in 2018 will lead to more opportunities for savvy active managers.
That doesn't mean investor appetite for index strategies or exchange-traded funds is waning — just that prospects for active managers are expected to increase.
"Passive will continue to get good flows, but conditions are improving for active to add value," said Lori Heinel, executive vice president and deputy global chief investment officer at State Street Global Advisors, Boston.
With accommodative monetary policies by three central banks — U.S. Federal Reserve, European Central Bank and Bank of England — beginning to slow, halt and reverse, investors can expect higher dispersion in returns across asset classes such as equities, fixed income and currency. That, in turn, could provide more opportunities for active managers, Ms. Heinel said.
"The big theme (for years) has been the flows into passive. I think we're going to see a reversal of that trend," said George Gatch, CEO of asset management clients, J.P. Morgan Asset Management, New York.
Mr. Gatch expects active managers to see flows normalize and for there to be a greater interest in differentiated and higher value capabilities from institutional clients.
A survey released by Natixis Investment Managers earlier this month, showed that 76% of investors surveyed believe that several factors — including expected higher market volatility and asset bubbles in 2018 — are leading to an environment that favors active management.
Since many public plans are still in return-seeking mode and some have significant funding issues, many continue to seek alpha via alternatives and multiasset class solutions, said Keith Lewis, head of Americas for T. Rowe Price Group Inc.'s global investment services division, Baltimore.