Harbour Asset Management issued a report in which it said advisers and their clients could do well to move away from a purely passive strategy.

It said there was nothing wrong with investing in index benchmark-based equity funds, as long as investors understood what they were getting was the good, the mediocre and the expensive equities.

Harbour suggested advanced beta equity funds could be a better option, because they filtered out stocks with less desirable characteristics, or active stock-picking funds that could outperform passive investments in periods of market weakness.

Clayton Coplestone, of Heathcote Investment Partners, said product innovation in the New Zealand market should be encouraged.

But he said a semi-active approach could be problematic.

“Those who subscribe to a passive philosophy believe that markets are efficient, and so are unable or unwilling to add value through active exposures. In this instance price must be the only differentiator for this commoditised approach to investing. Ultimately in a jurisdiction such as New Zealand where there is limited tax, and nil superannuation complexity, it will be increasingly difficult for these advisers to justify an ongoing presence, as consumers will be attracted to even lower price gateways such as roboadvisers in the future.”

He said the value-add for advisers who used an active philosophy included figuring out which active approaches were relevant and screening out approaches that did not meet expectations.

“Due to the ongoing monitoring and research required, this advice is worthy of an ongoing fee.”

Adviser Brent Sheather said passive investors worried about the risk in the equities market could rebalance their portfolios by selling equities and buying bonds.

He said active funds had a habit of taking on more risk before markets fell and reducing risk before markets rose. “Market timing isn’t easy.”

Sheather said: “2014 was the biggest year ever for FUM going into index funds.   If they have fundamental problems, why is the world embracing the low-cost model so vigorously. I’m not advocating 100% passive ... the benchmark is 50% active 50% passive but we need to encourage a sensible discussion of the issues.”