The Environment Matters
So, what about U.S. large-cap equity? Well, it turns out that active and passive management each tend to work well in cycles. This cyclicality is partly related to interest rate movements: historically, passive investing benefits from falling and steady interest rates, while active tends to do better in rising rate environments. Rising rates typically signal accelerating economic growth—and that usually leads to more performance dispersion and other factors, which favors active managers.
And that leads me to my final takeaway: consider the current, and potential future, market environment.
Financial professionals should consider striking a balance within their investment vehicles. Today’s advisors face increasing pressure to meet investor demands and build portfolios that minimize cost and generate the most value. Passive investing has many benefits, like broad market exposure at a lower cost—but it’s also important to consider tailored strategies to drive growth and outperform the market.
When it’s time to buy a new car, you’ve likely done your research not just on sticker price but also on its performance and safety features—and you would do the same for a client’s investment portfolio. Looking beyond fees and understanding how active and passive funds are structured across different asset classes can help advisors and investors determine the appropriate mix.
Claus te Wildt is senior vice president of capital markets strategy for Fidelity Institutional Asset Management. The content provided herein is general in nature and is for informational purposes only. The views expressed in this article reflect those of the speaker and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Products and services provided through Fidelity Institutional Asset Management® (FIAM®) to investment professionals, plan sponsors and institutional investors by Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI 02917. © 2018 FMR LLC. All rights reserved. 869068.1.0