Active investment funds face rising pressure

Tuesday, July 16, 2019

Subject

Passive and active fund management.

Significance

Active investment, actively buying and selling assets to try and outperform the market, was already under fire because of poor performance, high fees and passive funds (tracking a specific index) performing well due to the surge in global equity markets. Exacerbating this, the decision on June 2 by Neil Woodford, one of the United Kingdom's best-known fund managers, to suspend withdrawals from his flagship Equity Income Fund is triggering a scandal in UK asset management.

Impacts

  • Passive funds performing well fuels asset price bubble fears as they tend to lead to more money being directed to larger firms and sectors.
  • Exchange Traded Funds, popular passively run vehicles, have momentum, holding almost 5.5 trillion dollars, six times as much as in 2009.
  • The dollar may rise as geopolitical uncertainty will drive ‘safe haven’ interest but doubts over US growth and policy will cap the trend.
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