“A lot of advisors tell us they are getting questions from their clients, or are proactively searching for better solutions for their clients, and looking for ways to grow their practices. For several years now investment industry research has been showing that trillions of dollars in wealth is heading in the direction of women and millennials as a matter of demographic reality. That same research,” emphasizes Keefe, “strongly suggests that women and millennials look at investing differently than do older white males who control most of that wealth today and will be survived by the women and millennials in their lives. These two groups of investors are increasingly interested in ways to make their money part of the solution rather than part of the problem and understand the impact of ESG issues on a company’s balance sheet.”
The intersection between data and demographics is fuelling rapid growth in sustainable and impact investing. Keefe believes this is a long-term secular trend that advisors should be aware of and prepared for as fiduciaries, as well as take advantage of to grow their practices. “It’s a strategy for getting ahead of the curve and building your practice for the next generation of investors and advisors.”
The Active Versus Passive Debate
I asked Keefe where he stands in the active versus passive asset management debate, since Pax World manages both active and passive mutual fund portfolios that include smart beta strategies. Here is what he had to say.
“I’m a bit agnostic on this topic, Paul. Different solutions work for different investors, and I think it’s the advisor’s obligation, working with trusted asset manager partners, to provide the best solutions for each client as opposed to a one-size-fits-all approach.”
“This active versus passive debate has been around for some time. It goes back to Jack Bogle and the founding of Vanguard, and Burton Malkiel’s, A Random Walk Down Wall Street, first published in 1973. The debate is as healthy as it’s ever been, and there’s no doubt a lot of money is going to passive strategies, particularly ETFs. I personally believe that active, passive and smart beta, which is sort of a hybrid of active and passive, will all continue to be alternatives for advisors and asset managers, and I do think it will depend upon the needs of the client. For example, there’s still a strong argument that active management can really deliver value in less efficient markets, like small cap or emerging markets.”
“There’s no doubt that passive management is increasingly an option in highly efficient markets, like U.S. domestic large cap, so I think we’ll continue to see it have success there through index-based ETFs. I view ETFs, however, as more of a tactical investment vehicle than a strategic investment vehicle. They are a way to get exposure to certain parts of the market.”
Keefe concludes, “Long-term investors will continue to avail themselves of mutual funds in addition to ETFs, and I think they’ll continue to avail themselves of a mixture of passive, active and smart-beta strategies.”
Paul Ellis founded Paul Ellis Consulting to work with financial advisors who want to integrate sustainable and impact investment strategies for their clients.