TIME TO END PASSIVE VS ACTIVE INVESTING DEBATE

Active and passive fixed income investing are complementary, not at logger-heads, and serve different purposes within portfolios and in different market conditions, according to leading Australian investment manager QIC.

In a new Red Paper titled “Active management: skill, breadth and flexibility drives outperformance across investment cycles,” QIC explores the debate between active versus passive investing, drawing a comparison between the “climate wars” debate that has taken place in Australian politics over the last decade. The study goes on to investigate:

1. Changing market conditions and implications for investment strategies
  • Consistently low levels of volatility and low interest rates as well as the current attitude of the market
  • The risks for passive investors in the event of an inevitable market rebalance and correction, as well as the opportunities for active investors

2. Active investing fundamentally being about quality, not quantity

  • The difference in investment criteria for active and passive investment, including price and risk considerations, and due diligence
  • Price-making active investment versus price-taking passive management and their roles in the efficient operation of global capital markets
  • The opportunity for fixed income through a reduction in price-sensitive investors

3. Active fixed income investment rewarding good management and discouraging moral hazard

  • Lack of incentive and appetite for passive investors to monitor, analyse and avoid aggregated exposure to risky assets
  • Active investment due-diligence considerations around risk, particularly on ESG factors, and their role in incentivising a lack of exposure to direct or indirect risks, leading to superior risk-adjusted returns and Sharpe Ratios
  • Historical consistent outperformance of flexible asset allocation across cycles compared with passive investing

“We are passionate advocates for active investing, but that doesn’t mean that we turn up our noses at passive investing,” said Katrina King, Director, Research and Strategy at QIC. “It does mean, though, that based on findings from decades of investment research, there is compelling evidence to support the proposition that markets go through periods of inefficiency where they vary from fundamental value. By doing so, they create opportunities for active investors to outperform benchmarks by intelligently exploiting desired risks and avoiding undesired ones.”

Read more about QIC’s study Active Management: Skill, Breadth And Flexibility Drives Outperformance Across Investment Cycles.

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About QIC:

QIC is a global diversified alternative investment firm offering infrastructure, real estate, private equity, liquid strategies and multi-asset investments. It is one of the largest institutional investment managers in Australia, with A$82.0 billion (US$62.9/£48.4 billion)[1] in funds under management, offering infrastructure, real estate, private equity, liquid strategies and multi-asset investment services. QIC has over 700 employees and serves more than 110 clients including governments, pension plans, sovereign wealth funds and insurers, spanning Australia, Europe, Asia, Middle East and the US. Headquartered in Brisbane, Australia, QIC also has offices in New York, San Francisco, Los Angeles, London, Sydney, and Melbourne. For more information, please visit: www.qic.com.

About QIC’s Global Liquid Strategies business:

QIC is a leading manager of global fixed interest and global absolute return strategies, as well as providing innovative overlay and implementation solutions. We currently manage AU$32.3 billion
(£19.1 billion/US$24.8 billion)[2] across global interest rate, credit, inflation, equity derivatives, commodity and FX markets.  The GLS team have a long history of successfully managing strategies that are structured to meeting changing market dynamics and clients’ needs.

For further information, please contact:

Samantha Smith

samantha@bluechipcommunication.com.au

02 9018 8602

IMPORTANT INFORMATION

QIC Limited ACN 130 539 123 (“QIC”) is a wholesale funds manager and its products and services are not directly available to, and this document may not be provided to any, retail clients.  QIC is a company government owned corporation constituted under the Queensland Investment Corporation Act 1991 (Qld). QIC is regulated by State Government legislation pertaining to government owned corporations in addition to the Corporations Act 2001 (Cth) (“Corporations Act”). QIC does not hold an Australian financial services (“AFS”) licence and certain provisions (including the financial product disclosure provisions) of the Corporations Act do not apply to QIC. QIC Private Capital Pty Ltd (“QPC”), a wholly owned subsidiary of QIC, has been issued with an AFS licence and other wholly owned subsidiaries of QIC are authorised representatives of QPC. QIC’s subsidiaries are required to comply with the Corporations Act.  QIC also has wholly owned subsidiaries authorised, registered or licensed by the United Kingdom Financial Conduct Authority (“FCA”), the United States Securities and Exchange Commission (“SEC”) and the Korean Financial Services Commission.

For more information about QIC, our approach, clients and regulatory framework, please refer to our website www.qic.com or contact us directly.

The statements and any opinions in this document (the “Information”) are for commentary purposes only and do not take into account any investor’s personal, financial or tax objectives, situation or needs.  The Information is not intended to constitute personal legal or investment advice and it does not constitute, and should not be construed as, an offer to sell or solicitation of an offer to buy, securities or any other investment, investment management or advisory services.

Copyright QIC Limited, Australia 2017. All rights are reserved.



[1] As at 30 June 2017

[2] As of 30 June 2017

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