How a company approaches and views innovation trickles down into investment approaches and styles of investing, a recent study found. Fidelity Asset Management Solutions recently conducted an industry first survey in asking institutional investors how they invest and make decisions through a construct that was adapted from a different landmark study on innovation, reports Institutional Investor.
The 500 senior professionals at institutional investors that were surveyed all self-reported as innovators, early adopters, early majority, late majority, and laggards depending on how their companies approached innovation. Of the group, the majority reported that most of their assets were allocated into active strategies.
Of those surveyed, unsurprisingly the innovators and early adopters were most likely to make what they viewed as tactical changes in their portfolios; 93% believed that short-term opportunities hold the potential for value, in comparison to 70% of the laggards.
In order to capitalize on these opportunities, “you need more flexibility in your mandates, you need a governance structure that allows you to seek changes without seeking board approval,” said Vadim Zlotnikov, president of Fidelity Asset Management Solutions and Fidelity Institutional Asset Management. “The big difference is that [laggards] don’t have the infrastructure or people to take advantage of them. They have guard rails that are much tighter.”
Reflecting this preference, 63.5% of assets were allocated into active strategies by the institutional investors, with only 28.9% of assets allocated to passive options and 7.6% allocated in other alternative ways, such as smart, beta, strategic, and other strategies.
Of all of the senior professionals surveyed, 31% said that they anticipated increasing their allocation to active strategies by 2025. That number jumps even further when narrowing the field to just the innovators and early adopters, 50% of which anticipated an increase over the same time period.
“Early adopters and innovators tended to view current valuations as a risk to the level of future returns,” Zlotnikov said. “They see the valuation as being perhaps more of a headwind to the returns going forward, so they seek [returns] in other areas, such as active, the illiquidity premium, or the pursuit of vehicles like hedge funds that can exploit mispricings.”
Investment firm T. Rowe Price more than 80 years in the investment industry and touts over 70 funds with four to five star Overall Morningstar Ratings. The firm has more than 700 investment professionals, all working to use the latest field research and data for their actively managed funds. They currently offer five different actively managed ETFs, guided by portfolio managers averaging 17 years with the company.
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