Most things in finance are cyclical. So while there has been much talk of a “passive rotation” edging out active managers, there are good reasons for believing that current market tectonics will favour active management in the coming years. Undeniably the environment for active management was poor in the aftermath of the global financial crisis. This is nothing new. Active management has seen long periods of underperformance by active managers before, most recently 1983 to 1988 and 1995 to 2000. For a number of years through...
The best active managers may soon be looking at a favourable environment for the first time since the coming years, as tailwinds for passive investing begin to slow down. Historically low volatility, the willingness of central banks to intervene and high correlations between assets are all said to be on the wane, opening up an environment where the best stock pickers should be able to prove their worth. They will, however, have to avoid managing products which "hug" indices, while also competing with passive investments on price and value.