Close Close

Technology > Investment Platforms > Turnkey Asset Management

U.S. Investors Prefer Active Management to Navigate Volatility: MFS

Your article was successfully shared with the contacts you provided.

Nearly two-thirds of U.S. professional investors believe actively managed strategies work best in falling markets, according to results from the MFS Active Management Sentiment study released on Monday.

And, as MFS points out, the evidence supports their conviction.

Over the past 25 years, the top quartile of active managers has added 7.6% in excess returns in falling markets, according to MFS.

Part of the study, which includes insights from 1,083 financial advisors, institutional investors and professional buyers around the globe, focuses specifically on 575 respondents in the United States.

Of those U.S. respondents, 63% expect an increase in market volatility over the next 12 months

Joe Flaherty, chief investment risk officer at MFS Investment Management, sees this as an opportunity for active managers.

“At some point, we will see additional volatility and that creates opportunity for active managers to identify risks and generate alpha,” said Joe Flaherty, chief investment risk officer at MFS Investment Management, in a statement. “Downside risk management is part of the value proposition that active managers can deliver through research and security selection. Many active global managers have significantly outperformed in falling markets.”

Whether market volatility over the past month is temporary or a sign of things to come, MFS finds that 70% of professional U.S. investors surveyed call protecting capital in down markets one of the most important attributes when considering an active manager.

The survey asked investors to recognize what makes a good active manager.

The professional investors in MFS’s survey identified what they consider to be the most important attributes of a skilled active manager: risk management, long-term conviction and research expertise.

In the United States, 83% of survey respondents indicated that a firm’s active risk management process is the most important trait of a skilled active manager.

“We believe there are clear signs of a skilled active manager — establishing and adhering to disciplined research and portfolio management processes, demonstrating long-term conviction through differentiated portfolios and long holding periods, and adding value in volatile markets,” said Mike Roberge, co-CEO of MFS Investment Management, in a statement.

In fact, the survey found that among U.S. investors surveyed 67% pointed to active security selection as the most important attribute when considering an active manager. And, 64% thought a robust investment research platform is very important.

The survey also finds that active management appears to remain the preferred approach for investment professionals – despite significant flows into passive investment strategies in recent years.

According to the survey, 60% of U.S. professional investors surveyed say that actively managed strategies will play a significant role in their portfolios in the future.

In contrast, only 38% of U.S. professional investors surveyed are highly confident in passive management.

Meanwhile, the survey found that professional investors in the United States have allocated 77% of their assets under management to active investment strategies.

And, U.S. investors said they will continue to allocate the majority of their assets (68%) to active strategies over the next five years. More than half (52%) of all survey respondents said they are highly confident in active management.

— Related on ThinkAdvisor: