BlackRock says more active management needed in ‘new regime’

investmentnews.com:

BlackRock Inc., which capitalized on a decade-long boom in index investing, said investors should rely more heavily on actively managed strategies.

Higher interest rates, persistent inflation and more geopolitical risk offer active managers and hedge funds a bigger opportunity to beat simple buy-and-hold portfolios, BlackRock analysts wrote Tuesday in a paper that referred to the environment as a “new regime.”

“Static asset allocations — or set-and-forget portfolios — are a reasonable starting point, but we don’t think they will deliver as in the past,” BlackRock Investment Institute analysts including Vivek Paul and Andreea Mitrache said in the paper. “The era of ultra-low interest rates is in the past, and future expected returns look less attractive.”

In the decade preceding the Covid-19 pandemic, developed-market stocks and bonds beat the returns on cash by about 10 and 2 percentage points, respectively, according to the analysts for BlackRock, the world’s largest asset manager.

“Getting the asset mix right matters much more now,” they added, contending that “mega forces” are keeping interest rates above pre-pandemic levels.

“Macro uncertainty has ballooned since the pandemic struck – and dispersion of returns has increased,” the analysts wrote.

[More: How much room is there for active management?]

The BlackRock analysts join top executives at some of the largest firms, including Janus Henderson Group Plc, Franklin Resources Inc., T. Rowe Price Group Inc. and Neuberger Berman, in emphasizing the role of active management in current markets.

But they’re confronting a client base that has continued to shift away from actively managed funds, with more than half of mutual fund and ETF assets in passive products since