The Death of the Traditional Passive Fund

Fidelity’s annual global institutional investor fund survey, released in March, showed that institutional investors plan to turn more toward active strategies and smart beta products in the coming years. This according to an article in Institutional Investor.

Of the survey respondents, which included 905 institutional investors in 25 countries, 41 percent of those from large institutions (of between $1 billion and $10 billion in assets) said they expected to increase their allocations to active strategies by 2025 and 25 percent  said they would also increase their exposure to non-traditional passive, or factor-based funds. Only 5 percent signaled they would increase their traditional passive positions.

These views, the article reports, are driven by lower future return expectations across markets and an increase in investor confidence regarding systematic approaches such as value and momentum factor investing. A report based on the survey states, “Institutions also believe that new technology-driven approaches may make what remains of the public markets more efficient, potentially making traditional alpha…harder to find within this shrinking universe.”

The article quotes Fidelity Institutional Asset Management president Judy Marlinksi: “With passive, the magnitude of the change surprised us. We still have phenomenal index sales. That trend hasn’t stopped, but sophisticated investors are realizing that diversification [of strategies] is critical.”