Active vs. Passive Investing: What Investors Are Doing

A survey of institutional investors by the money manager Janus Capital Management said that they were increasing their investments into actively managed funds.  63.3% of investors believed that active managers can outperform their benchmark indices.  They needed to generate returns above the market (alpha), meet plan return assumptions, re-allocation of capital, increased confidence in risk management of fund managers and improved market conditions.  On the other hand, investors planning to decrease investments with active managers have less confidence in the managers' risk management procedures, did not like the high fees and underperformance of the funds.

However, the data from the survey is not consistent with fund flows.  The eVestment Alliance Passive Fixed Income universe has been positive in four of the past five quarters.  One consultant noted that passive fixed income returns would be "challenged" as credit spreads have narrowed and investors can counter that by investing in active fixed income.