Partner Content: What's the reality beyond 'peak' passive investing?
Market events have revived the argument of whether passive instruments could see their first real downturn in the coming year. But the reality may not be so clear
The huge growth of passive investing has been one of the defining features of the bull market since 2009. However, its rise goes back to the 1970s with investors being offered the chance to invest in a lower-cost and more transparent way by the likes of Vanguard's Jack Bogle, a passive fund pioneer. Though he was often ridiculed by his peers, the appeal of this type of investing was clear: it is a low-cost investment solution that provides diversification and eliminates individual stock risk. Importantly, it is an alternative way to build wealth versus active funds.
So far, those predicting the passive investing style's doom have been proved wrong. Even in the face of heightened market volatility, passive providers BlackRock and Vanguard saw net inflows of more than $140bn in the first six months of 2020. Some of the largest active fund houses reported multi-billion dollar net redemptions over the same period. More investors also turned to fixed income passive vehicles as investors sought more stable returns during the period, rather than having to add to risk for higher returns as active managers may do.
Architas's Sheldon MacDonald believes there is a good argument for both styles of investing at the moment, which is beneficial for the Blended range's flexible approach to both active and passives: "In a volatile environment, we see a lot of ‘babies thrown out with the bathwater' and stocks sell off quite indiscriminately. During a recovery, and what we are seeing currently, is that a lot of stocks are being bought indiscriminately, prices being pushed up to levels not justified by their fundamentals. So at different points there will be a fertile harvest ground for both active and passive products, he says.
Click here to read the analysis of active/passive investing in full and more about the flexibility of the Architas Blended Range by clicking on the box below.
