Active or passive: Rishma Moennasing (Rabobank Investment Office)
This article was originally written in Dutch. This is an English translation
By Rishma Moennasing, Hoofd Beleggingsfondsen en Mandaten, Rabobank Investment Office
There is growing demand for equal weight indices.
To what extent are passive strategies appropriate in a volatile, inflation-sensitive or geopolitically turbulent market?
‘In general, in large, efficient markets, such as a global investment, we either opt for exposure to a large market, such as the US or Europe, or for a passive investment. It is generally more difficult for an active manager to beat the index in these efficient markets. In these unusual market conditions, a passive approach can work well in combination with active management. An active manager can, for example, assess at company level whether President Trump's import tariffs are affecting a company's activities and results and adjust his fund accordingly. Active management can therefore certainly add value in this market.
How passive are indices these days?
‘A few trends are noticeable. There is growing demand for equal weight indices to reduce the impact of bubbles, such as the tech bubble with the Magnificent 7, on the performance and volatility of an index. There is also greater demand for indices that invest exclusively outside the US. This is entirely due to geopolitical sentiment, with investors opting to underweight the US or exit US equities altogether and invest in Europe. Interest in indices with European equities, and in particular in the region or a country index such as the DAX, is therefore increasing. There is also greater demand for indices that invest in specific themes in Europe, such as innovation, defence and the production of capital goods, semiconductors or cloud services. The latter segment in particular is still dominated by US tech companies. Perhaps belatedly, but Europe seems to have realised that we have become too dependent on the US for certain core activities. In that respect, President Trump has certainly shaken Europe awake.
