Franklin Templeton President and CEO Jenny Johnson believes that the current investment environment is “absolutely fertile ground for active management” where “active managers thrive.”
“Anytime you have this kind of uncertainty, this is the time that active managers thrive,” Johnson told CNBC.
She explained that bear markets are a reminder “that dividends are 40% of the total return of equity markets,” and that on the fixed income side, “that’s where credit spreads widen,” so that’s where “you pick your place on the duration curve.”
“So, I think it’s just an opportunity for active management,” Johnson added.
During the current declining market, active managers are having their best year since 2009, particularly large-cap active managers. A report from S&P Dow Jones Indices shows that nearly half (49%) of large-cap domestic equity funds outperformed the S&P 500 in the first six months of 2022, while the S&P 500 fell 20% on a total return basis during the same period. By comparison, in 2009, 52% of funds exceeded their benchmark indexes over the full year, while the S&P 500 rose 26% during the year.
“Declining markets make active management skills all the more valuable, and our report shows that a significant minority of active managers were able to outperform in several categories,” according to S&PDJI.
“I think this environment is absolutely fertile ground for active management,” Johnson said.
Johnson, the Franklin Templeton CEO and president, added that active management has struggled over the past decade when the government was “printing money.” When interest rates were at zero, investors were “throwing money into the equity markets, [where]everything was correlated and moved up,” said Johnson.
“Now, we’re really seeing the real companies that have good business plans, good value, stable balance sheets, those are outperforming some of these others, and so I think this is when you want to be doing in-depth research and deciding who can withstand what I think is going to be a choppy period,” she said.
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