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Active Investing A Winner in Current Market Environment

Active Investing A Winner in Current Market Environment

January 27, 2023

The current market environment makes sense for active investors, writes Mohamed El-Erian, Queens College President and adviser to Allianz and Gramercy.

In a new opinion piece in the Financial Times, El-Erian writes that we are in an “investment world in which greater selectivity, smart structuring, and dynamic asset allocation trump more often the lower fees on passive vehicles.”

El-Erian starts by posing a question he says is not asked enough by investment committees, and that is whether “vehicles that investors choose to place their money should be a function of the investing environment.” He writes that the question has become “a lot more important for generating high risk-adjusted returns” with the shift to passive investment strategies.

El-Erian writes that passive investing works superbly when a common global factor is in play, helping to heavily influence investments. For much of the past decade, that common global factor has been “artificially floored interest rates and massive injections of central bank liquidity.” With that, he pointed out that passive investors made easy money.

However, El-Erian says the rise of inflation first shook and then ultimately dislodged that global factor, making today’s investing landscape a more dynamic playing field that requires expertise and a steady hand.

In addition, he says growth risks in the U.S., Europe, and China, as well as looming structural shifts involving technology, geopolitics, and supply chains only add to the challenge­ – putting even more emphasis on the value of active management.

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