Morningstar: “Ignoring market inertia can work against active management investors”

This Tuesday, Morningstar updated its vision of the exchange-traded funds (ETF) market and the concentration and diversification trends in the equity market, in addition to presenting the latest report from the Morningstar Fund Family, where they analyze and classify based on several different metrics to the 100 largest asset managers in Europe, among which there are four Spanish ones (Santander, BBVA, CaixaBank and Ibercaja).

José García Zárate, fund analyst at the firm, explains that “the concentration of the stock market is not something particular at this time”, although he does recognize that “this time the concentration has reached higher levels than in previous times and has given in a smaller number of companies, while in other periods it has been more sectoral”. “It is something that does not happen only in the United States. It occurs in all regions,” the expert clarifies.

Regarding the implications that this situation may have, García warns that “the greater the concentration, the greater the risk. If the market sentiment changes, the fall could be greater.” For the manager and the investor it can also be decisive. “For the active manager it is difficult to ignore inertia and stock market concentration, although it depends a lot on the category and investment style, since the value tends to do it more than blendFor example. Not getting on those winning horses can go against the interests of the unitholders,” suggests García. “Sometimes, active management is not so much about finding that hidden gem and it is about knowing when to stick to the indices and ride the inertia and stop doing it when those potential risks are anticipated,” he adds.

Regarding trends in the ETF market, flows towards this type of asset continue to increase. In the last quarter, the third of 2024, there have been a new entry record of money in Europe, with 63,000 million euros net. With this, the assets under management of these products now amount to 2 billion euros in the Old Continent.

Among the trends that have been identified in recent months, it has been appreciated high demand for funds equalweighted, which are those that balance the values ​​that form it. “This has been seen especially in September and is the reaction to the falls at the beginning of August and the perceived risks of the great concentration that is being generated in the American stock market,” the agency explains.

Likewise, they indicate that there are many capital flows towards investment vehicles. small caps North Americans. In fact, these flows mark a record since the last quarter of 2020. “Investors are seeing a clear opportunity in a segment that has been left behind and that should benefit from the Fed’s rate cuts,” explains García.

Finally, they have addressed the emergence of Actively managed ETF“which serve as a gateway for managers that are not competing in the active management segment but want to enter the index fund business,” they explain. 7-8% of flows in Europe go to these assets while in In the US this figure reaches 25-30% of money in movement, already assuming a market share of 8% compared to 2.2% on the Old Continent. The main advantage in the US is that it enjoys better taxation than traditional funds.

“In Europe the cost is between a passive fund and a traditional fund. What we have to see is whether the market is willing to pay more for an ETF, even if it doesn’t care as much. alpha like a traditional one,” they indicate. “Another issue to address is that these vehicles, for the moment, cannot be closed to new investors and, depending on their investment universe, they may have capacity problems,” they conclude.

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