Active or passive? Highlights from our investment symposium
30 October 2017 | Topical insights
Last year, £4.9 billion went into passive funds and only £2 billion went into active1. Given that historically, active management has been the favoured option, why has there been such a shift in investor preferences?
Sean Hagerty, managing director for Vanguard Europe, spoke about the rise of passive investing at the most recent of our annual investment symposiums, which took place in Leeds on Tuesday 3 October and in London on Wednesday 4 October. The events featured a lively programme of insights, designed to help busy financial advisers create a better business through defendable investment decisions, client-focused portfolios and effective, durable relationships.
Our highest number of attendees yet were able to enjoy a broad range of topics presented by expert speakers, both from within Vanguard and from the wider industry, including Rory Percival, who was ‘the face of the FCA’ to advisory firms for many years.
A key theme throughout the day was the importance of costs. During his presentation, Sean showed some research demonstrating that when it comes to active fund management, fees have been far, far higher than excess returns over the last 10 years to the end of 20162. These are US figures, but the UK equivalent is likely to be in proportion. Active asset managers haven’t been earning their keep – or at least they haven’t in the past 10 years.
So, as Sean asked, is it a question or active versus passive, or is it actually a question of high cost versus low cost? Looking at equity funds and ETFs available for sale in the UK, we can see that net cash flow (NCF) for the three highest cost quartiles decreased by £119 billion over the 5 years to 31 December 2016. Over the same period, NCF for the lowest cost quartile increased by £135 billion3. Investors are choosing with their feet – and they’re choosing low-cost products.
If you were able to join us for the symposium, we hope you found it an engaging and exciting event. Take a look at our highlights video for a selection of moments from the day. Next year’s symposium will take place in October 2018 – we hope to see you there!
1Source: Morningstar, Inc.
2Source: Morningstar, Inc.
3Source: Vanguard calculations, based on data from Morningstar, Inc.