Cerulli: Institutional Investors Shifting to More Active Strategies

March 17, 2023

In today’s volatile market, institutional investors are trusting active managers. That’s according to a new report from advisory firm Cerulli Associates, which analyzed mutual fund and ETF trends in January 2023.

“Most institutional investors still want a majority of their portfolios to be actively managed,” the report stated.

According to the report, five out of six categories of institutional investors are on pace to increase their allocations to active equity strategies over the next two years.

That includes insurance, nonprofits, corporate defined-benefit plans, health care, and Taft-Hartley plans. Of those, insurance leads the way by boosting active exposure to 62% from 59%. Nonprofits are boosting it by a point to 52%, while Taft-Hartley plans are boosting active exposure by 7%.

Of those planning to increase exposure to active equity, 32% are choosing to boost exposure to U.S stocks, followed by global stocks at 21%, and emerging markets at 18%.

The only outlier is public defined-benefit plans, which plan to decrease their exposure to active equity by just 1%.

For fixed income, four out of six categories are planning to increase active strategies. Again, insurance companies lead the way in increasing exposure to active, rising from 59% to 61%.

This comes as institutional investors remain a key piece of the active management business.

The report’s author Chris Swansey, spoke to InvestmentNews.

“It remains to be seen whether active funds can recoup some of the flows they have lost over the last 10 years in a significantly new market environment,” Swansey said. “For now, at least, institutional investors have signaled that they will continue to provide a backstop to active fund flows.”