Despite well ingrained confidence in active management, advisers expect an average 5.2% return in the long term and institutional investors are not much more optimistic with anticipated returns of 7.3%. This is less than the return generated by FTSE 100 which, as at September 2016, had generated 10.1% in annualized returns over five years.
The lack of return conviction by advisers and institutional investors shows the deep-seated damage the low return environment is causing. The abysmal return expectations could suggest institutional investors and advisers are so disillusioned that the best they can hope for is a return which matches, or in this case even underperforms, a passive product.
Despite their muted return expectations, over three quarters of institutional investors (76%) say they have confidence in active management.
When considering managers, investors prize consistency and protection above all else.
Although the passive portion of portfolios is due to increase over the next five years, investors believe active strategies will have the strongest influence on performance; 77% say liquid alpha strategies will have the greatest impact on return in the next three years.