Seven Investment Management (7IM) has bucked the trend of moving towards passive investing, increasing its focus on active managers as it says the time of “easy money” has come to an end.
The firm believes that quantitative easing, where the government buys assets to stimulate the economy, has created a “flood of money” which has benefited passive funds and higher value listed companies.
As this monetary policy shows signs of being ended by governments, 7IM has said “the stage is set for active managers to demonstrate their strengths”.
“Quantitative easing had a massive impact on markets on the way in, and it’s started to look like it will on the way out,” 7IM’s chief executive Tom Sheridan told City A.M.
He explained that as bond yields rise with interest rates, they will lose a disproportionate amount of their value and managers will have to work harder to generate returns.
The active-versus-passive debate has increased over the last year, as the Financial Conduct Authority’s asset management review and European regulation has pushed fund managers to lower their fees.
Passive funds, which simply track an index rather than relying on star stock pickers, are generally much cheaper to run.
7IM’s Tony Lawrence added the firm would continue to offer passive exposure where this could offer efficiency.
"[But] one of the weaknesses of passives is that they are not designed to discriminate – they sweep up whatever is in the index," he explained. "So we have increased our active exposure in the multi manager funds, and when we do go active, we will go really active, using contrarian, high conviction managers with a focus on valuation.”