A bigger role for active strategies

For professional clients and qualified investors

Emily

A lot has happened from a macro perspective over the last few years with elevated inflation and rising rates. What is driving this in your view?

Vivek

So we've entered a new macroeconomic regime and this is an environment which is characterised by supply constraints. And what that does is it limits the overall potential for growth. It means there's greater inflationary pressures driven by that supply.

And that means that it's harder for policymakers to get it right in terms of prioritising both having good levels of growth and bringing inflation down.

That difficulty, that trade-off leads to macro volatility, that leads to market volatility and that's really the driver of the greater dispersion we're seeing across asset classes.

Emily

So what does this mean for how investors build portfolios?

Vivek

Well, I think unlike the past, we're not going to see an extended period where stocks and bonds do brilliantly at the same time.

And what that means is the sort of static set and forget type approaches that worked so well in the past, we think aren't quite going to cut it in this new regime. What we need is more dynamically managed strategies.

Asset allocation is just going to matter a lot more now. And through that dynamism, we think it's part of the reason why we think there's a greater role for actively managed strategies now.

Emily

And how are these active returns to be generated?

Vivek

Well, active returns be generated within asset classes and across asset classes.

So within asset classes, think about those investors with the expertise and the resources to really find top quality managers who are able to exploit their views on picking the best stocks or the right parts of the yield curve and away from those static benchmark exposures. And then across asset classes, what we're thinking about here is like dynamically managed strategies.

So picking the right exposures at the right time, be that across sectors or regions or styles. I think more broadly, when you think about putting it all together, this is an environment where there is a role for both index strategies and actively managed strategies, and it's the blend of getting them together that is really important. In a nutshell, though, we think that blend is going to feature more of the actively managed strategies than we saw in the past.

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