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BlackRock<\/a> Inc., which capitalized on a decade-long boom in index investing, said investors should rely more heavily on actively managed strategies.<\/p>\n Higher interest rates, persistent inflation and more geopolitical risk offer active managers and hedge funds a bigger opportunity to beat simple buy-and-hold portfolios, BlackRock analysts wrote Tuesday in a paper that referred to the environment as a \u201cnew regime.\u201d<\/p>\n \u201cStatic asset allocations \u2014 or set-and-forget portfolios \u2014 are a reasonable starting point, but we don\u2019t think they will deliver as in the past,\u201d BlackRock Investment Institute analysts including Vivek Paul and Andreea Mitrache said in the paper. \u201cThe era of ultra-low interest rates is in the past, and future expected returns look less attractive.\u201d<\/p>\n In the decade preceding the Covid-19 pandemic, developed-market stocks and bonds beat the returns of cash by about 10 and 2 percentage points, respectively, according to the analysts for BlackRock, the world\u2019s largest asset manager.<\/p>\n \u201cGetting the asset mix right matters much more now,\u201d they added, contending that \u201cmega forces\u201d are keeping interest rates above pre-pandemic levels.<\/p>\n The BlackRock analysts join top executives at some of the largest firms, including Janus Henderson Group Plc, Franklin Resources<\/a> Inc., T. Rowe Price<\/a> Group Inc. and Neuberger Berman, in emphasizing the role of active management in current markets.\u00a0<\/p>\n But they\u2019re confronting a client base that has continued to shift away from actively managed funds, with more than half of mutual fund and ETF assets in passive products since late last year, according to data compiled by Bloomberg. At BlackRock, which managed about $10 trillion of client assets at year-end, $2.6 trillion was in active equity, bond and other strategies. Index and ETF assets amounted to $6.6 trillion.<\/p>\n The gap between stock market winners and laggards has widened since 2020, creating a bigger opportunity to beat broad market returns, according to the paper.\u00a0<\/p>\n Shifting between indexes is also a form of active management, the analysts said, allowing investors \u201cto exploit their skill in timing markets and their ability to consistently pick exposure to the right sectors, regions and styles.\u201d<\/p>\n BlackRock said that finding skilled portfolio managers with the ability to outperform can be costly and difficult, and \u201cbudget-constrained investors may want to consider index building blocks instead.\u201d<\/p>\n<\/div>\n\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n<\/div>\n