Active management may have unique advantages in the current market environment, characterized by higher volatility and wide disparity among sectoral performance.
The comeback of smaller-caps and equal weight might have positive implications for active managers, as their portfolios are often closer to equal- than cap-weighted, according to Anu Ganti, senior director, index investment strategy, S&P Dow Jones Indices.
With its small-cap bias, the S&P 500 Equal Weight Index has outperformed the S&P 500 by 3% so far this year, according to Ganti.
Plotting the underperformance of large-cap funds compared to the relative performance of the S&P 500 Equal Weight Index versus the S&P 500 as a proxy measure for smaller-cap outperformance, “we notice that two out of the three years when most active large-cap managers outperformed (2005, 2007 and 2009) coincided with Equal Weight’s outperformance,” Ganti wrote.
Actively managed funds to consider include the ARK Innovation ETF (ARKK) and the ARK Genomic Revolution ETF (ARKG), which have rebounded in recent weeks to partially recoup earlier losses experienced across broader markets.
After a negative start to the year for the market, with growth stocks being hit particularly hard, ARKK and ARKG are up 16.3% and 17.1%, respectively, over a five-day period, and up 2.1% and 10.3%, respectively, over a one-month period.
ARKK is an actively managed ETF that invests in companies relevant to the investment theme of disruptive innovation. This includes companies that rely on or benefit from the development of new products or services, technological improvements, and advancements in scientific research relating to the areas of DNA technologies and the genomic revolution, automation, robotics, energy storage, artificial intelligence, the next-generation internet, and fintech innovation.
ARKG is an actively managed equity strategy that aims to provide exposure to DNA sequencing technology, gene editing, CRISPR, therapeutics, agricultural biology, and molecular diagnostics.
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