Managers consider third wave of investing

Institutional fund managers have moved into a third wave of investing moving beyond active or passive strategies while also moving away from the benchmark in an effort to avoid underperformance according to HSBC Global Asset Management deputy chief investment officer Vis Nayer.

According to Nayer ‘smart beta' strategies are becoming a common form of investment with institutional managers in Europe and the United States and is in increasing use by managers in Australia.

Nayer said institutional managers across the world were sensitive to volatility at a time when equities prices were in flux and were seeking new index based investments that were not capital weighted to generate beta returns.

He said HSBC had adopted indexes that were weighted for stock price instead of market capitalisation allowing it to find returns, after stock trades, not present in other forms of passive or index investing.

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Nayer said the Asian-Pacific region had not yet adopted this model as much as Europe which had been pushed into new solutions due to market conditions in recent years, but institutional managers were beginning to assess this approach.

HSBC Australia head of Asset Management Geoff Pidgeon said the group had been running funds with this model since June 2012 and to date most interest had been from Europe with the marketing of funds only beginning in Australia at the start of this year.

"We have had genuine interest from pension and insurance funds interested in low volatility and quality stocks but have yet to allocate funds. The education side is growing and chief investment officers are seeking information for their boards because they will be required to move from established benchmarks and peer groups if they go down this path," Pidgeon said.