Too often, active and passive strategies are considered separately, but there is plenty of merit to combining both management styles under a single portfolio’s umbrella.
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.
“Active investing, on the other hand, aims to generate above market returns by an in-depth research and analysis and using the knowledge and expertise to manoeuvre into or out of a particular stock, bond or any asset, taking full advantage of short-term price fluctuations,” according to the Daily Pioneer.
The exchange traded fund universe has quickly expanded on the increased popularity of passive, index-base strategies. The next growth spurt could come from the actively managed ETF side as more prominent mutual fund names begin to step into the space.
Some market observers believe that investors need to go beyond relying on past performance or buying the cheapest ETF. They are now incorporating a more forensic approach that could dig deeper into company fundamentals.
Active funds provide “the flexibility of buying stocks which could be hidden gems. Since active investors are not stuck with index stocks, they are able to exit any sector or stocks when the risk becomes too high and can also hedge their bets using various techniques such as short sales or put options,” reports the Daily Frontier.
Some money managers may loathe the idea of revealing their methodology in a fully transparent actively managed ETF, but others have fully embraced the investment vehicle to provide greater value to investors.
“So does active portfolio management create value? The debate about the merit of active vs passive portfolio management is supported by numerous researches worldwide. In the mid-1960s, Eugene Fama adjusted the EMH and suggested three forms of informational efficiencies; the weak form, semi-strong and strong. This hypothesis suggests that investors cannot beat the markets by actively managing portfolios, as stock markets incorporate all the publicly available and privately-held information into price movements,” notes the Daily Frontier.
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.