Investors currently looking to increase allocations to index-based funds within their strategic asset allocation may be picking the wrong time to do so, according to research house van Eyk.
"Certainly the analysis we've looked at suggests that now is a better time for active management across both Australian and global equities," van Eyk investment analyst Michael Lindsay said.
"The analysis we've looked at around cross-sectional volatility indicates that rewards for active management are stronger now than they've certainly been in the recent past."
Lindsay said the global financial crisis has brought investor focus back on companies' balance sheets and business quality in general. As such, active managers who differentiate between companies based on business quality have performed well through much of the financial crisis, and are likely to continue to do so but to a lesser extent.
van Eyk also expects a range trading environment for the near to medium term, which will benefit active managers that are able to identify and take advantage of varying opportunities at both a stock and sector level.
"Due to the increased dispersion in returns from stock to stock, there are now greater opportunities for stock pickers than there were a couple of years ago," Lindsay said.
The comments came after van Eyk completed its review of 52 international equities managers. Only around a quarter of them made it to van Eyk's recommended list but none achieved the research house's top AA rating.
van Eyk recommends a 20 per cent allocation to international equities within a client's balanced portfolio, excluding alternatives.
The research house's expected long-term annual return for global equities is 6.6 per cent gross with 14.5 per cent standard deviation.
