A Role for Both Active and Passive

Advisers believe that both active and passive investing play a vital role in building a retirement portfolio, according to Cerulli. More than 80% think passive investments can reduce fees and that active managers are ideal for certain asset classes.

“Approximately 75% of advisers agree that active and passive investments complement each other,” says Brendan Powers, senior analyst at the research firm. “Cerulli argues that the debate of active or passive has shifted to active and passive, with more focus on how to best use both as tools to build more efficient client portfolios.

“In general, active will retain a key role in asset classes where it adds value over passive,” Powers continues. “The asset classes where more than half of advisers prefer actively managed mutual funds include international/global fixed income (61%), multi-asset class (60%), emerging markets fixed income (58%), emerging markets equity (53%) and international/global equity (51%).”

Regarding which U.S. equity asset categories advisers plan to boost allocations to, the most common are technology (33%) and small cap (30%). Advisers’ top portfolio objective—cited by 98%—is downside risk protection.

Cerulli also discovered that advisers currently allocate 64% of client assets to actively managed strategies, 25% to passively managed exchange-traded funds (ETFs) and 11% to passively managed index funds. Fifty-five percent of advisers create a customized investment portfolio for each client; 42% start with an investment model, which they then alter.

Among those advisers who use models, 80% use one created by their practice, 68% use a home-office model, and 66% use an asset manager model.