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A C T I V E
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PA S S I V E ]
A
ctive investors are sensing that
the long-term tide towards
passive investing may be
starting to turn. According to Morn-
ingstar’s bi-annual Active/Passive
Barometer published in March 2018,
the success rate of stock-pickers in the
US increased sharply in 2017: 43% of
active managers outperformed their
average passive peer, compared with
just 26% of active managers in 2016.
With U.S. interest rates starting to rise,
could 2018 be the year when active
strategy finally rebounds?
The average passively managed
dollar, according to Morningstar, still
outperforms its active rival. Nicholas
- SANTIAGO BRAJE, GLOBAL HEAD OF
CREDIT TRADING, ING BANK
Edwards, chief executive of Alterna-
tive Asset Management in London, is
convinced that the future is passive.
Edwards argues that about 70% of
all market activity now relies on algo-
rithms, and says that this is impossible
to compete with unless traders are at
their desks 24/7 and have the ability
to make decisions within milliseconds.
Omnipresent algorithms, he asserts,
will continue to reduce the scope for
market arbitrage. “Automation drives
pricing,” he says. “If people can move
40 // TheTrade // Summer 2018
quickly, they will.”
Active investors, in Edwards’ view, are doomed to a
shrinking minority in the future: “Most active manag-
ers underperform and pension fund managers won’t
take the risk.” A small pool of investors will continue