Most things in finance are cyclical. So while there has been much talk of a “passive rotation” edging out active managers, there are good reasons for believing that current market tectonics will favour active management in the coming years.

Undeniably the environment for active management was poor in the aftermath of the global financial crisis. This is nothing new. Active management has seen long periods of underperformance by active managers before, most recently 1983 to 1988 and 1995 to 2000. For a number of years through mid-2016, passive management benefited from tailwinds such as very low volatility, high correlations, slow growth, reduced fiscal spending, and intervention by central banks whenever any bad news emerged, all of which worked against active management.