— Manny Roman is spreading the word: Active management pays off, at least for bonds.
Speaking at the Milken Institute Global Conference held at the Beverly Hilton, Roman, the new CEO of $US1.5 trillion fund manager PIMCO, made a case for active management in the bond market. Passively managed exchange-traded funds have been hoovering up assets, helped by the promise of low fees, and the underperformance of active equity managers.
The combined assets of US ETFs stood at $US2.7 trillion in February, according to the Investment Company Institute, of which $US457.4 billion was in bond ETFs.
“In fixed income, [passive outperforming active] is simply not true,” Roman said. He cited a recent PIMCO study that found that the majority of active bond funds and ETFs beat their median passive peers. The report said:
“As the chart below shows, the majority of active bond funds and ETFs beat their median passive peers after fees over the past 1, 3, 5, 7 and 10 years, with 63% outperforming over the past 5 years. In contrast, the majority of active equity strategies failed to beat their median passive counterparts during the period. Only 43% outperformed over the past 5 years; in every other period, the percentage is lower still.”
Roman cited a bunch of reasons why this has happened, many of which echo those identified in PIMCO’s report. These come from differing investor behaviours, with some bond investors, such as central banks, having different motivations for buying. In addition, bonds come due, meaning that there is a higher degree of turnover in the bond market.
“This has dropped out of the dialogue because everyone focuses on equity,” Roman said. “We’re taking a stand and saying please look at the data.”