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The shift from actives to passives is taking place across global markets including India. Sharing his views on the changing dynamics, Luis Berruga, Chief Executive Officer, Global X said at Cafemutual Passives Conference 2022 (CPC 2022) said, “Passives growth doesn’t appear to be slowing down any time soon”.
He also said that there are several lessons that India could learn from the West regarding passive strategies and the disruption of the asset management industry.
While active managers may have a good story and offer potential to outperform their benchmark, historical data in the US shows that this is incredibly difficult to deliver consistently. Investors are willing to overlook this due to a stretch of historically great returns of equity markets overall. But with recent volatility, rising inflation and growing interest rates, investors are likely to be more conscious of fees, particularly if overall returns lag.
The decision to enter or support the ETF market can be challenging given the lower fee structure. However, ETFs combined with a wide variety of funds offer precise tools for asset allocation.
It also tackles the ‘style drift’ challenge in mutual funds. Let’s consider an example of an asset allocation targeted for large cap growth. While every investment is made with large cap active mutual funds, it is not uncommon to see value stocks or even small cap stocks showing up at times in the portfolio. This is style drift.
With ETFs, the funds will stick to their benchmark criteria and their target asset allocation will be precise. By utilising an ETF, you can gain dedicated exposure and not miss out on the expected growth levels.
Here is a snippet of Luis’s session. You can watch the complete session along with the session of other industry veterans who spoke at CPC 2022 at a nominal price of Rs. 499 only. Simply write to us at newsdesk@cafemutual.com and prepare for Passives - ‘The New Frontier’!
