Are passive investments making financial advisors jittery?

They are expected to constitute 41.7% of investors’ portfolio.

While 80% of Singapore financial advisors agree that active strategies will have an important role in the anticipated market volatility, investors are still expected to make more room for passive investments, which will constitute 41.7% of their portfolio in the next three years.

According to the latest survey by Natixis Global Asset Management, 71% of advisors claimed that investors have false sense of security regarding passive investments.

More so, 82% of them think investors are not fully aware of the risks associated with passive investments.

Natixis Executive Managing Director Madeline Ho said the investors have to understand that the very nature of index funds has no built-in risk management to protect them against market loss.

"The physics of passive investing is that they produce positive returns when markets go up, but they also produce losses when markets go down,” Ho said.

She stressed the necessity of understanding the risk, particularly in passive investments.

"It is crucial to remind investors about this investment basic which can easily be taken for granted , whilst explaining to them at the same time how active management can help to better control the risk of their portfolio and navigate through such complex and volatile markets," she explained.