When it comes to active vs passive allocations within asset classes, there are many winners on both sides ... yet the loser is the idea of an active-passive mix within an asset class.
| Patrick Newcomb|
Fuse Research Network
Director of Benchmark Research
That is one finding from the latest "Product Usage: the Advisor View" edition in Fuse Research Network's Advisor Trend Monitor
series. The report, in its fifth year, draws on a recent FA survey conducted by WealhManagement.com
Among other things, the researchers asked FAs about their preferences (active, passive, or both) across 25 different asset classes. In all 25 asset classes in 2018, fewer advisors than in 2017 said they prefer a mix of both active and passive.
On the active side, 14 asset classes gained favor with more advisors in 2018, led by: currency funds (58 prefer active, up from 49 percent in 2017); domestic small/micro value (54 percent, up from 48 percent); international core (54 percent, up from 49 percent); domestic small/micro growth (54 percent, up from 49 percent); and emerging market (59 percent, up from 54 percent). Other active classes increasingly favored by advisors included: domestic mid cap growth, domestic large cap value, global, domestic mid cap value, commodities and real assets, regional, short duration corporate bonds, domestic large cap growth, and market neutral.
On the flip side, the biggest suffering active asset classes (in terms of drops in the percentages of advisors preferring active strategies) were: government bonds (47 preferred active in 2018, down from 51 percent in 2017); absolute return (61 percent, down from 65 percent); managed futures (63 percent, down from 66); long/short (64 percent, down from 68 percent); and tactical allocation (57 percent, down from 61 percent). Other active asset classes suffering drops in advisor favor include: unconstrained bonds, municipal bonds, core corporate bonds, high yield corporate bonds, and multi sector bonds.
On the passive side, the category that won the most FA converts this year was absolute return funds, with 22 percent of advisors preferring passive strategies in the category, up from 12 percent in 2017. Other big passive winners included: government bonds (34 percent in 2018, up from 25 percent in 2017); long/short (20 percent, up from 11 percent); muni bonds (25 percent, up from 18 percent); and managed futures (20 percent, up from 13 percent). A growing number of FAs also favor passive strategies in: unconstrained bonds, core corporate bonds, multi-sector bonds, tactical allocation, high yield corporate bonds, short duration corporate bonds, domestic large cap value, domestic large cap growth, regional, market neutral, emerging market bonds, domestic small/micro value, global, domestic small/micro growth, and international core.
Meanwhile, only three passive asset classes suffered from a drop in advisor favor this year: domestic mid cap growth (21 percent of FAs preferred passive in 2018, down from 22 percent in 2017); currency (24 percent, down from 25 percent); and domestic mid cap value (23 percent, down slightly).
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