Look to Active ETFs in the Late Business Cycle

As investors enter the late stages of the business cycle, some may look to actively managed ETF strategies that may be more flexible in adapting to the quickly changing markets.

“We are big believers in active management,” Dave Lafferty, Chief Marketing Strategist for Natixis Investment Managers, said at the 2018 Morningstar Investment Conference. “I think the market environment is becoming a little more conducive to that at this point.”

Lafferty highlighted a couple of factors that has helped support the active outlook. For example, he highlighted the rising dispersion, so there is more room for active managers to pick and choose their spots to generate alpha.

As the bull market conditions mature, the changing economic environment such as wage growth and rising inflation will also produce diverging corporate earnings, which some managers will have to pick out.

“Beta may be tapped out,” Lafferty said. “We had a great run in long-only stocks and bonds.”

Additionally, Lafferty argued that passive does not really manage risk actively since these passive indexing methodologies only follows general market trends, which may leave many exposed to greater risks, especially among traditional market cap-weighted index investments.