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“I have seen both active & passive spaces and think there is a need for cohesive growth,” said Koel Ghosh, Head of Strategic Initiatives, ETF Junction at Cafemutual Passives Conference 2024.
In the realm of modern investment portfolios, the once-subtle rise of passive funds has evolved into a dominant force, reshaping traditional notions of wealth management. At the forefront of this transformation, industry leaders gathered at the Cafemutual Passives Conference 2024 to explore the dynamic landscape of passive fund innovation and its impact on investor strategies.
Led by Koel Ghosh, the panel delved into the reimagining of business models amidst the growing popularity of passive funds.
Ghosh, a seasoned observer of both active and passive spaces, emphasized the necessity for cohesive growth, setting the stage for a dialogue that dissected the very fabric of contemporary investment paradigms.
Here are some key takeaways from the panel discussion:
Why should passives be in your portfolio?
Pratik Oswal, Head of Passive Funds, Motilal Oswal AMC shared that he would not have recommended passive funds five years ago. However, there has been a significant increase in passives’ market share since then reaching 17 to 18% in India and over 50% in the USA. Additionally, the tracking errors of passive funds were significantly high which has now gone down. Oswal shared that even from a research perspective, having one passive fund in your portfolio results in slightly higher returns.
Can passives generate Alpha?
Ankit Singhania, VP, Specialist Passive & Hybrid Strategies, UTI MF shed light on apprehensions surrounding passive funds especially that they do not generate alpha. Ankit shared that other than market cap-based indices, there are also factor-based indices where stocks are selected based on momentum, low volatility, growth, value, etc. This smart-beta strategy tends to generate a significant alpha. Singhania firmly believes that alpha generation is not a challenge in passive funds.
The innovation of smart beta
Umeshkumar Daila, Head - ETF Sales, Mirae Asset MF believes that passive funds have a scope for innovation, leading to smart beta investing. He shared that the modern investor is well-informed and wants something new, this is where innovation comes into the picture.
Since there’s no scope for innovation on the active side, more and more AMCs are exploring the passive side especially smart beta products. He described smart beta as ‘Actively Passive’ with its AUM reaching Rs 18,400 crore. Momentum and equal weight are the two categories witnessing the most flows. He also shared that Mirae Asset MF is committed to creating products that complement the client’s portfolio through the cyclical shakeups in the market.
Active Vs Passives
Alok Kumar, Head - Alternate Products, Aditya Birla Sun Life MF shared that a mix of active and passive plays a huge role in client satisfaction & retention. Investors have specific needs & wants with their investments be it fulfilling life goals or maximizing wealth. To meet these aspects of investor needs, both active and passive funds play a major role. Alok believes that the market is automatically moving to the next direction and MFDs need to adapt to it to sustain their businesses.
MFDs need to focus on ETFs
Ashish Shah, Founder of Wealth First Portfolio Managers shared that MFDs need to start prioritizing passive funds. He said that MFDs refrain from ETFs as it won’t generate revenue for them and focus entirely on index funds. Shah believes that graduating a customer from fixed income into the equity market should be done through large-cap ETFs as it generates better returns.
Watch the entire session by clicking HERE or visiting Cafemutual’s YouTube channel.
