Is active fund management investors’ only hope for 2024 outperformance?

A new survey by Natixis Investment Managers has shed fresh light on the strategic shifts wealth management firms are adopting to navigate the complexities of the 2024 market.

The survey, which gathered insights from 223 professional fund selectors across North America, highlights a significant consensus: 72% believe that active fund management will be crucial for outperforming the market in 2024.

This finding underscores a shift in strategy as three fifths (61%) of respondents reported that actively managed funds on their platforms surpassed their benchmarks last year, with two thirds (67%) anticipating that the markets will continue to favor active management over passive strategies.

The transition towards active management marks a pivotal change from the previous decade, which saw substantial investments flow into passively managed index funds. However, 46% of the fund selectors attribute the historical success of passive investments to a decade of central bank policies that maintained artificially low interest rates and minimal inflation – conditions that may not persist.

With half of the respondents warning that overreliance on passive investments could lead to significant learning curves in 2024, the survey reflects a growing apprehension about the sustainability of passive strategies in a changing economic environment.

"Fund selectors expect the 2024 investment landscape to be anything but normal, not by historical, new, or next-normal standards,” commented Dave Goodsell, head of the Natixis Center for Investor Insights.

“They are looking to manage client investments, the client experience, and relationships by adjusting their firms’ product and model portfolio offering to help clients stay invested and armed with protection in unfamiliar investing territory."

With volatility and uncertainty still on the menu for 2024, wealth management firms are adjusting their offerings to include a greater proportion of active funds. The survey indicates 45% of fund selectors are planning to add more active funds to their platforms, with a significant focus on active ETFs, which have seen a surge in assets in recent years.

Around half of fund selectors surveyed (53%) identified cost efficiency as the prime advantage of active ETFs. Other benefits include tax efficiency, access to innovative strategies, intraday trading, and enhanced alpha potential.

The research also reflected growing traction in model portfolios and separately managed accounts given their ability to help instill investor confidence and provide a consistent investment experience. Notably, four fifths (82%) of fund selectors reported having some form of model offering, with an increasing interest in third-party models and specialized strategies to complement core portfolios.