Macquarie’s plan to beat the investment robots
Investing robots and index funds are poaching billions of dollars from human fund managers, but Macquarie Investment Management head of the Americas Shawn Lytle says the firm is repositioning to cope with the seismic shift into passive investing.
Globally, droves of investors are yanking money from high-fee active managers and parking their funds in passive strategies such as exchange-traded funds that ride the ups and downs of select markets.
Macquarie Investment Management, a global division which manages about $US257 billion of Macquarie Group’s $US362 billion in assets under management, is aiming to differentiate by offering more unique actively managed equities, bonds and alternative assets such as infrastructure.
“We are at the size where we don’t have to be everything to everyone,” Mr Lytle said in an interview.
“We are focusing on being a complement to passive management.”
Rather than steering institutional and retail clients into easily-obtained blue-chip stocks and indexes such as the US S&P 500, Macquarie argues it can still add value by offering less-easily replicated portfolios.
Options include client allocations to its $US100 billion-plus infrastructure funds, a concentrated 33-stock large-cap portfolio, US and international small caps, emerging markets, Asian equities, its hedge fund in Hong Hong and the fixed-income fund run by Brett Lewthwaite in Sydney.
Mr Lewthwaite, senior portfolio manager of the Macquarie Income Opportunities Fund and regional head of Macquarie Investment Management, believes prices across most asset classes are high.
Despite nascent signs of world inflation picking up and central banks pulling back from their massive monetary stimulus, he doesn’t envisage a big sell-off in bonds or jump in global interest rates.
“The reality is the economy can’t afford higher yields due to the huge build-up of debt in the global economy over the last 30 years,” Mr Lewthwaite said.
Ageing populations in most economies and digital disruption – such as Uber and Amazon – are also likely to keep a lid on price pressures and allow global interest rates to remain low, he said.
“Unless the indebtedness situation changes the elusive return to normal will remain elusive unfortunately.”
In a low-yield environment, Mr Lewthwaite said clients could adjust their fixed-income portfolios by taking less interest rate risk and more credit risk.
Low bond yields and high equity valuations have led Macquarie to advise clients to adjust their return expectations over the next decade compared to the stellar profits since the 2008 global financial crisis.
“We believe there will be positive returns over the next 10 years but they’re going to be much more moderate,” Mr Lytle said.
“In that environment finding the right mix of active and passive strategies in order to meet return targets is going to be very important.”
Active funds in the US recorded outflows of $US340 billion last year, according to Morningstar, with well-known fund firms including Fidelity, Franklin Templeton and Pimco suffering withdrawals.
On the other hand, passive fund strategies took in a record $US505 billion, with passive founder Vanguard and ETF-focused BlackRock dominating.
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