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Seven Investment Management (7IM) has turned its back on the trend of pushing towards passive investing, improving its focus on active managers as it says that the time of “easy money” has already come to an end.
The company believes that quantitative easing, where the government acquires assets to stimulate the economy, has produced “flood of money” which has served passive funds and higher value listed companies.
As this monetary policy displays signs of being ceased by governments, 7IM has stated that “the stage is set for active managers to demonstrate their strengths.”
“Quantitative easing had a massive impact on markets on the way in, and it’s started to look like it will on the way out,” said Tom Sheridan, the chief executive of 7IM.
He discussed that as bond yields increase with interest rates, they will lose an excessive amount of their value and managers will be required to work harder in order to generate returns.
The debate on active-versus-passive has increased over the past year, as the asset management review of the Financial Conduct Authority and European regulation has urged fund managers to lower their fees.
Passive funds simply track an index instead of relying on star stock pickers. These are usually much cheaper to run.
Tony Lawrence of 7IM added the company would still offer passive exposure where this could allow efficiency.
“[But] one of the weaknesses of passives is that they are not designed to discriminate – they sweep up whatever is in the index,” explained Lawrence. “So we have increased our active exposure in the multi-manager funds, and when we do go active, we will go really active, using contrarian, high conviction managers with a focus on valuation.”