Passive investments increase in popularity


By Elizabeth Somerville

Email Article Print Article

The popularity of passive investing has continued to grow with financial planners increasingly using indexed strategies to achieve portfolio growth, a new report from Investment Trends has revealed.

The "September 2014 Adviser Product Needs and Marketing Needs Report", released last week, found passive investing to be at the highest level since the survey started measuring it in 2010.

“Nineteen per cent of new client flows [went] into passive investments such as indexed managed funds and exchange-traded funds,” Investment Trends senior analyst Recep Peker told financialobserver.

“In 2010 [the first year indexed investments were measured], this was 13 per cent.”

Inflows into passive investments were expected to increase further as advisers decreased the amount of new client flows placed into cash products and instead looked towards growth opportunities available through diversified and simple products, the report added.

“Indexed investments are becoming more popular [and] advisers are signalling an intention to use them even more,” Peker said.

“If planners have their way, they expect that over the next three years passive investments will make up to 21 per cent of new flows.”

Although the report found the outlook for the domestic market was not as strong as it had been in previous years, it also found investors to be less concerned about losing investments, he said.

“We’re currently going through an interesting period where the average investor’s capital gain expectations from domestic equity markets is deteriorating, but at the same time there are many more who are seeking growth in their portfolios, perhaps because of suppressed yields,” he said.

“Investors want to chase other opportunities in addition to Australian shares.

“There’s a lot more [client] appetite for international investments again.”

Further, the report found planners and clients continued to be bullish on international assets, with one-third of new client investments placed into international assets over the past year, making it the highest observed level since the study began in 2008.

In addition, there was a surge in the communication needs planners desired from their fund managers, which was consistent with market instability, Peker said.

“Often during times of volatility, generally people's communication needs go up,” he said.

“Advisers [also] want to engage their clients more as by engaging with them, they can maximise the chance of someone continuing with the relationship.

“One way to do this is by leveraging off the expertise of fund managers.”

The report was based on a survey of 768 financial planners and examined asset allocation trends, views on fund managers, investment products and researchers.

« Back to Articles