Alpha may become more dominant in low-return environment
Alister van der Maas, managing director of Russell Investment in New Zealand, said there had been a noticeable shift into passive investments over recent years, which started in the early 2000s but had picked up pace again more recently.
But he said with expected returns across all asset classes having dropped, the importance of the value that alpha could add had been heightened.
“If you are expecting a balanced portfolio to return 5% gross, or 3.5% net, and you could get an additional 2% in alpha from active management of the portfolio, that’s quite a lot in a 5% environment. In a 10% environment it’s not so much. The importance of alpha is higher now that it has been.”
A passive investment strategy could only be expected to track an index, minus fees, he said. But a good active manager should return more.
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