Posted inEquitiesUnited States

‘Half of S&P 500 will be passive owned within a year’

The chief investment officer at the fund group predicted this happening because of the global trend for investors diversifying their portfolios by moving out of active and into passive investment strategies.

This movement, he said, had the potential for at least 50% of the US’s largest companies’ shares to be controlled by passive strategies within the next year.  

“That has to be a milestone in our industry,” he said.

Speaking at the Fidelity investment dinner on Wednesday, Rossi added the firm was “very comfortable” with this trend and was prepared for passive to sit side-by-side with the firm’s other strategies.  

Earlier this year Fidelity launched two smart beta products, the Fidelity Global Quality Income and US Quality Income Ucits ETFs.

However, Rossi, who is stepping down as Fidelity CIO in January after a decade in the role, warned that if more than half of the S&P 500 becomes controlled by passive vehicles then corporate governance standards needed to improve.

Rossi said: “The migration of assets away from equities to systematic [strategies] will reduce resources available for single company analysis. To be an active investor is not just about voting ‘yes’ at AGMs, it requires more than that.

“You need the resources and capacity to scrutinise management on a weekly basis. Without that, we will not have a functioning equity market.”

Rossi said he had observed people from the corporate side finding it difficult to secure meetings with their largest shareholders thanks to this trend in the asset management industry.

“If we are not careful we will end up where companies are not just unhinged from the government, but also from their faceless shareholders,” he said.

This, he added, means active management still has a role to play in the future.

Sebastian Cheek

Sebastian joined Last Word Media in 2017 as editor of Portfolio Adviser. He previously spent 10 years as a journalist and editor in the UK institutional investment sector, most recently as editor...

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