Active investment managers have no option but to adopt hedge fund strategies to counter the migration to low cost passively run portfolios, said an outperforming asset manager.
They need to shift to greater use of techniques like mathematical models, algorithms, derivatives and hedging, said Olivier Nobile of Arkea Asset Management. It will increase the chances of offering index-beating returns and greater protection for investors during downturns, said Nobile, whose firm is a unit of Credit Mutuel Arkea, which has $55 billion under management.
Nobile’s two largest funds, Arkea Focus European Economy and Arkea Focus Human have outperformed nearly 90% of peers this year, while offering lower volatility, shows data compiled by Bloomberg. The funds are up 9% and 18%, respectively, compared to an 12% gain in the Euro Stoxx 50 Total Return Index.
“We are firmly convinced that the active equity management of tomorrow will only be hedge-fund like, that is to say with a combination of quantitative and fundamental drivers, and real management of extreme market risks via permanent hedging,” Nobile, a manager of thematic investments at Arkea, said in an interview.
“This will allow fund managers to present a very different risk profile from passive equity management.”
Investors have flocked to exchange-traded funds and other forms of passive asset management over the past decade. Their relatively low costs and attractive liquidity have made it harder for active fund managers to justify their fees as they struggle to beat typical equity benchmarks or outdo portfolios tracking large-cap stocks.