With the value factor, international equities, and other assets that have previously been out of favor expected to come back into style this year, opportunities are plentiful for active managers to add value for investors.
Active management could be particularly useful at a time when a small number of mega-cap tech stocks are dominating traditional index funds.
Meanwhile, traditional index investments have exhibited a higher concentration to growth and tech, with the combined weight of the 5 largest S&P 500 components now at 22.2% of the benchmark, compared to about 12% back in 1991.
Aggressive stimulus measures, such as the ongoing near zero-rate environment and government aid package, both of which are supporting the ongoing bull run. More stimulus, which could come to pass now that Democrats run the show in the nation’s capital, could be another opportunity for active managers.
“Given the great spread in valuations we’re seeing in the market at the moment, we think there are really good opportunities for active managers, whether they’re selecting individual companies or managing entire portfolios to add value in the coming few years in a way they’ve really struggled to do over the last few years,” according to Morningstar.
Issuers believe the new active ETFs offers the best of both traditional active equity and ETF worlds, highlighting value add through the alpha potential of active management, access to a growing array of active equity strategies, the advantages of the more efficient ETF structure, and the additional choice of structures that meet investor needs.
Active management can help investors identify dominant, growing businesses around the world today that may be overlooked by those unwilling to look beyond the index and think long-term.
“Again, cost is incredibly important. You need to access an active management with the most talented investors as cheaply as you possibly can. But we can see that coming back into the fore over the next few years as these active managers are able to select companies or select assets that are out of favor with the possibility of much higher return,” according to Morningstar.
For more on active strategies, visit our Active ETFs Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.