As the role for passive strategies increases across both institutional and retail markets, one investment professional reveals why investors will value simplicity over complexity.
Selector: Albéric Menoud
Company: 2PM Luxembourg
Investors’ use of passive products has changed dramatically in the last five years.
On one hand, demand is growing from private and institutional investors for many reasons. Private investors are now better educated and feel more confident investing in specific themes, such as robotics and water. Meanwhile, institutional investors are looking for efficiency in terms of yield and costs.
On the other hand, few investors are interested in active funds in markets such as the US, Europe or even Asia, and prefer ETFs instead.
Passives are increasingly used in efficient markets such as the US, Europe or Australia.
However, in emerging markets investors still prefer a mix of active and passive strategies. Investors should determine how well these countries are researched at a company level, to assess how viable it would be to invest in an ETF tracking them.
Passives are becoming more commonplace, partly because of an increased scrutiny on cost. However, today’s investors want to understand what they are putting their money into.
They are less keen on complex products where risks, components and fees can be difficult to gauge. For this reason passive strategies are more likely to develop along vanilla ETF/ index lines.