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Wednesday, October 2, 2013

Needles Envisions an Actively Managed Renaissance

Reported by Tommy Fernandez

Renaissance. It's a rousing idea for active managers, a rousing image. Instead of nervously peering over the performance screens of indexing robots, they are creating, maybe carving a marble statue, or painting a masterpiece on a canvas maybe foreseeing future advances (both possible and impossible) like Leonardo DaVinci.

The patron of that confident visionary declaration was Gene Needles, president and chief executive of American Beacon Advisors. He was moderating a panel on the subject of global equity opportunities during the 2013 Media Day "Insights from America's Leading Investment Managers."

Needles' firm hosted the event which took place from 8:30 a.m. to noon Wednesday at the Waldorf-Astoria in New York.

His comments came during the questions and answers session following the panel, which featured Ryan Taliaferro, senior vice president and PM at Acadian Asset Management; Harry Hartford, president of Causeway Capital Management; Trey Greer, partner at EARNEST Partners, and George Fraise, portfolio manager at Sustainable Growth Advisers.

The panel had been asked by one of the attending members of the press (there were roughly 50 at the event) on the panelists' outlook for ETFs, given evolving market conditions. The panelists previously had addressed a variety of subjects including the continued solid growth of emerging markets going forward and how a Federal default could impact the debt markets, and favor companies that self-finance.

Needles was quick to own the answer to that question himself.

Firstly, he stated that American Beacon doesn't offer ETFs, but it does offer three index funds to large corporate pension plans. However, he stressed that that firm's focus remains firmly in the land of alpha seekers.

"We are in the business of creating actively managed mutual funds," he said from the podium. "Obviously, we are big believers in active management. There is reason for that. I think going forward from here, the days of trying to replicate an index whether it is an ETF or an actively managed portfolio will go by the wayside."

Needles expressed his confidence in making such a declaration, noting that earlier in his career he was "instrumental" in Invesco's acquisition of ETF-shop PowerShares, when he had served as chief executive of Invesco's distribution arm.

His reason for confidence in active managers going forward: sectors and countries are not homogenous, which is how indexers tend to view them, but rather offer significant differences and opportunities that can be found and capitalized upon by a (human) specialist.

"I continue to think that the great play going forward, particularly in a global market economy, will not be the whole globe, but specific countries and specific companies. This is the great Renaissance we are about to experience going forward for active managers. To have the great flexibility to go [where they need to go], and not try to parrot or mimic an index or hug it too lightly."

In fact, Needles declared, "active managers will do extremely well over the next five to ten years."

His confidence in actively managed products was demonstrated by the selection of panelist members. Three of the firms represented, Acadian, EARNEST and Sustainable, manage products that American has either recently launched or is in the process of launching. 

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