Managing the World’s Huge Funds
Funds are divided into two managements; passive and active. The size of the fund will be $4 trillion as a total. Passive management have recently surpassed active management. While passive management is essential for managing the world’s huge funds under management, given the historically increasing funds and the long-term growth of the stock market, it sometimes causes confusion in the stock market.
Many Faces seen in Passive Management
Passive management that does not consider valuations tends to be at the mercy of market waves. On the upside, it attracts short-term capital to accelerate further appreciation. When the market is in a downtrend, it also accelerates the downtrend because of the associated selling. In addition, passive management often includes leverage, which tends to increase the range of ups and downs.
The stock market declines especially seen in the past few weeks so far this year were largely due to passive management which was mostly in US market.
This was overextended past in 2021. It will likely correct itself several times this year.
What to Expect in 2022
Therefore, we expect the market to remain volatile in 2022. In the world of investment management, long-only funds are strong in low volatility market environments, while active management is strong in high volatility market environments. Overall, active management can be one of the better choice this year.
We can’t wait to see the outcome!
Masahiko KUMADA
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