As an active long-term investor, we aim to create sustainable value for our clients in a way that also has a positive impact on wider society. We believe that building an inclusive organization will unlock the power of diversity, and by embracing difference, we will achieve better performance and more innovation. For us, striving for inclusion and diversity is not only the right thing to do; it’s the only thing to do.
While investors can approach 2021 with optimism that an effective Covid-19 vaccine will be available, the path of the economic recovery remains unclear. A broader toolkit of investments is needed – not just the regions, sectors and strategies that have recently done well.
We are pleased to introduce The Investment Intelligence Podcast, where experts discuss all things investing, from recent market developments, to strategy, sustainable investing, asset allocation, risk management and more.
The primary goal for most investors? A positive investment outcome that aligns with their objectives and evolves as needed over time. Looking ahead, disruption will change the market environment and returns may be more difficult to find. Investors may have to work their money harder to achieve the goals they seek.
Here’s how active asset management can add value against that backdrop.
Changing market conditions pale by comparison to the wave of disruption affecting the world around us. New technologies – artificial intelligence, blockchain, machine learning – are transforming business models.
Active managers seek to anticipate the future and guide clients through the obstacles and opportunities. By contrast, passive management approaches tend to rely more on the past – focusing on trading today without a view on what tomorrow may hold, and leaving investors to find their own way.
One of the specific dangers is that a passive index may give the largest weighting to sectors that have already peaked – see chart. This point is critical because procyclicality – the tendency to follow the herd or track the cycle – is potentially one of the biggest destroyers of value.
Passive investments track the world of yesterday
Weighting of sectors in the global equity market (Datastream index)
Source: Datastream (sector indices); Allianz Global Investors Capital Markets & Thematic Research. Data as at November 2017.
This is where investors can tap one of the key strengths of active managers: their depth of knowledge of companies, industries and markets. Knowledge like this helps active managers separate the signals from the noise and identify areas that may be most likely to prosper in the future.
Active’s role in creating a sustainable tomorrow
Active’s ability to identify the most sustainable businesses goes beyond corporate longevity: active managers can support sustainability in every sense of the word.
Today’s businesses are subject to multiple types of risks, both publicly measurable and hidden – risks ranging from operational, governance or reputational concerns to business-model vulnerabilities, changes in customer preferences and supply chain disruptions.
What role does ESG play in active management?
Short termism has had an increasing influence over investment decisions. Here, CEO Andreas Utermann argues that ESG gives managers an opportunity to refocus on the longer term – which can also increase the chance of outperformance.
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Taking a stewardship role, active managers can identify such risks, help companies navigate difficult situations and encourage them to build on competitive advantages. Integrating environmental, social and governance (ESG) factors as well as stewardship into the investment process – rather than simply excluding certain stocks or sectors – allows active managers to engage with companies to drive improved performance, while maintaining a universe of investment opportunities for clients.
These approaches are at the heart of how active asset management is evolving for a new era.
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