The debate around whether picking stocks, or passively following the market, delivers the best return is a frequent one among financial professionals, but 80% of ETF investors are indifferent either way, according to a new study by ARK Invest.
Most of the 180 professional investors in Europe it spoke to were equally interested in holding a blend of both active and passive ETFs in their portfolios, with only one in 10 having a preference for a single strategy.
Rahul Bhushan, managing director of the firm, said: “This survey, despite its small sample size, challenges the often-simplistic narrative of active versus index investing. It’s not a binary choice.
“Instead, professional investors emphasise the importance of well-constructed ETF products and the quality and clarity of the investment process, irrespective of whether it is active or index.”
See also: Will active ETFs prove to be as successful as passives?
But choosing to go down an active or passive route in certain sectors can have a big impact on outcomes, Bhushan added.
Those surveyed were most interested (83%) to invest in AI-dedicated ETFs, followed by cybersecurity (61% ), innovation (57%), sustainable infrastructure (41%) and sustainable food (40%) – yet different approaches thrive in all of these themes.
Many ETFs claiming to specialise in AI, for example, are simply “Nasdaq 100 proxies” when you take a closer look, Bhushan said.
“When investing along the broad value chain of a general-purpose technology, such as AI or blockchain, an active approach might be sensible, as standardised definitions are lacking, and no two investors with a research-powered process are likely to end up with the same basket of AI companies,” Bhushan explained.
See also: Calastone: The ETF industry ‘desperately needs standardisation’
On the other hand, active managers struggle to add value in more efficient themes such as cybersecurity or food, highlighting the need for investors to utilize both strategies if they want to get the most out of markets.
Bhushan said: “For clear-cut sectors or industry groups, such as cybersecurity or food, an index approach makes the most sense—not because of a lack of conviction in specific stocks (we exclude many companies from our index ETFs based on factors like financial strength and volatility), but because these sectors are easier to map and can be delivered at a lower price point as an index.”
