In 2021, new fund structures and actively managed exchange traded funds could mix and match to investors’ benefit.
The coronavirus pandemic is presenting a myriad of challenges to asset allocators, but one area that’s proving sturdy is actively managed alternative strategies.
Alternative managers employ long-short strategies, hedge fund replication, managed futures, global infrastructure, merger & acquisitions, private equities, and Treasury spread investments, among others.
“After going half-insane watching a tiny cabal of technology megacaps rule stock indexes all year and make their benchmarks almost impossible to catch, active fund managers may be on the verge of liberation,” reports Bloomberg. “Positive vaccine news is fueling optimism that an economic reopening is no longer a pipe dream. That’s sparking a rotation into a much broader array of beaten-down companies, such as small-cap and value shares.”
Is This Time Different for Value Stocks?
For some time, rebounds in value stocks have moved in fits and starts, but there’s brewing sentiment that the recent gains could be different than prior disappointments, all to the benefit of active managers.
Value fans believe this time may be different for value stocks, pointing to improving measures of investment sentiment, abating fears of a recession, rebounding corporate profits, and lessening trade tensions between the U.S. and China. Furthermore, value stocks are now trading at some of their most attractive prices in years as the growth/value gap is as wide as it’s been in decades
Some data points indicate active managers are finding their grooves late in 2020.
“Just 21% of large-cap core funds are beating their benchmarks this year, according to data from Jefferies Inc. They fared better in October, with 39% outperforming as the equal-weight version of the S&P 500 posted its strongest month against the market-cap index since 2011,” states Bloomberg.
With continued global uncertainty due to the pandemic, the U.S. equity market has become increasingly focused in recent times, due principally to a handful of large cap growth companies’ stellar growth. This has dramatically changed the investment landscape, with success now largely dependent on making the right decisions on a small group of companies that dominate the movement of many indexes.
“Still, the mathematics favor stock pickers should the tech sector falter. Without the big five’s gain, the S&P 500’s 10% year-to-date climb dwindles to just 2.4% — a much easier hurdle to clear,” reports Bloomberg.
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.