Active management shines in turbulent markets

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As outperforming stocks face a potential pullback, actively managed funds are ready to react to market developments.

Markets recently hit a string of new highs, with the S&P and Dow Jones closing at new highs on Monday after hitting a five-day streak of winning close, something the Dow has not done for four years.

A second quarter of strong earnings saw growth and value stocks continue to outperform, but the spread of the Covid Delta variant worries both investors and the general public.

“The Delta variant has hit the confidence of the average American, so we need to watch for the ripple effects on the economy,” said David Donabedian, chief investment officer at CIBC Private Wealth. “It will be a chronic problem causing some volatility in the markets.”

This was reflected in the drop in retail sales in July, down 1.1%. Estimates had initially placed the decline at 0.3%. This unexpected drop, potentially due to Delta concerns, has already caused retail inventories to plummet at large retail companies such as Home Depot (HD) (which is down 4.3%) and Lowe’s (LOW) (which is down 5.9%).

The advantage of active management is reactionary

The changing winds have caused many indexers to see their funds plummet as several industries take a downward turn, such as oil and industrial stocks, the latter despite positive output. Get into actively managed funds, with the ability to react to increasing volatility, capitalizing on potential declines in a myriad of ways, depending on a fund’s structure.

Many actively managed funds have downturn and volatility protections built into the way they operate, with market movements triggering a reaction within the fund. Sometimes that means a reallocation in the event of a sharp downturn, sometimes it means a temporary conversion to another type of asset.

All that aside, the very nature of active management is by nature reactive and protectionist as portfolio managers have the ability to react in real time to market movements. It is an actively managed fund mechanism that makes them increasingly attractive as investors and advisers anticipate potentially volatile markets as the delta remains in play, hampering economic recovery. Funds can lose money during downturns, but they have the ability to minimize the loss against their benchmarks.

T. Rowe Price offers five different actively managed ETFs for investors looking to capture a variety of different types of exposure. With volatility to come, actively managed funds could offer shelter from the storm.

For more news, information and strategy, visit Active ETF Channel.

Learn more at ETFtrends.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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