Passive Investment Rise Poses Risk to Market Says MS

July 10, 2017 Share Print 0

Passive investment strategies have grown in popularity among investors, but they present a “frightening” risk to the markets, warns a Morgan Stanley strategist.

The flow of investment from active management funds to passive investment funds is significant; it increased to nearly $500 billion in the first half of 2017, according to Bloomberg data. Morningstar data revealed investors have pulled an estimated $26.7 billion from Goldman Sachs Asset Management’s mutual funds so far this year, the Financial Times reported on Sunday.

Hans Redeker, global head of foreign exchange strategy at Morgan Stanley, is worried by this flow of cash.

“I do not like what I see, because you have to consider when you have people getting more involved with passive investment strategies, the market will be less able to react to minor distortions or minor declines on the fundamentals side. You will not see the market direction. You will see just a continued inflow of funds,” he told CNBC’s Squawk Box on Monday.

via CNBC

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.