South African pension plans have a greater affinity for actively managed funds as opposed to passively managed or index funds, according to SEI Investments.
The company explained that because of volatile markets, these pension plans are seeking refuge through international diversification.
SEI senior investment analyst James Barber said the reason for the growth of actively managed mandates - faster than passively managed mandates - is the success international managers have enjoyed in beating passive benchmarks. He added that over the last five years, more than 75% of the active managers have managed to beat the MSCI EAFE index.
Barber suggests that growing sophistication among investors may also be contributing to the interest in actively managed funds.
He added that most active managers take risk bets by trying to time the market with varying levels of cash, by trying to over or underweight their exposure to investment styles, or by trying to over or underweight their exposure to small versus large stocks.
Numerous studies prove rather conclusively that attempts to time the market, or rotate investment styles - large, small, growth and value - fail on a risk-adjusted basis over time,” said Barber.
Since the research shows that portfolios of style-specific managers outperform broad market indices, and do so with similar risk, this is the approach we have adopted.
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