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Financial News recently highlighted a call by investment consultants for a shift from active to passive management which charge lower fees, and returns on average are about the same as active managers. The shift, if carried out in line with consultant recommendations, could save institutional investors $50bn a year.
An increased shift to passive investments is likely to produce growth potential for ETFs and a range of other instruments. They are already widely used by self-invested pension plans due to their liquidity and transparency. An increasing number of consultants empowered to make investment decisions on behalf of schemes are using them to carry out tactical asset allocation.
ETFs allow investors to realign allocations by adding and subtracting precisely the asset classes, style and amount needed to adjust their portfolio allocation to meet changing market conditions or to exploit market cycles. This allows investors to manage the balance between risk and potential return in their portfolios more effectively by continually fine-tuning their long term investment strategy.
This one day conference highlighted the current uses, opportunities and the considered risks when using ETFs as part of an institutional investor’s investment strategy. It also discussed the differences between ETFs and other Index funds, with a particular focus on whether ETF liquidity and fee structures are sufficiently alluring to larger pension schemes, who have traditionally accessed long-only passive funds.
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