All articles tagged with #active management
Stuart Kirk argues that passive funds aren’t to blame for SpaceX’s lofty valuation: price discovery remains the realm of active managers, and ETF inflows simply mirror an index rather than fix prices. He explains how index construction and float-adjusted weights can influence but not determine value, and notes that cycles in return dispersion create alpha opportunities even as passive investing stays cheaper and safer overall.
Bond ETFs are gaining popularity due to higher interest rates and a broader range of options, including core, multisector, and high-yield funds, offering investors new opportunities to manage risk and enhance returns in their portfolios by 2026.
Vanguard plans to launch its first actively managed stock-picking ETFs this year, expanding from its traditional passive index funds, with strategies focusing on dividend growth, growth stocks, and value stocks, in response to rising demand for active ETFs.
Vanguard is launching three new active ETFs managed by experienced managers from its mutual funds, marking its first entry into bottom-up stock-picking ETFs, aiming to offer lower fees and tax efficiency amid a competitive ETF landscape.
Hedge-fund manager David Einhorn argues that passive investing has fundamentally broken the markets, as it disregards value and focuses solely on price. This shift has led to the annihilation of the value industry, creating a vicious cycle where value stocks fall further due to redemptions. Einhorn explains that the rise of passive investing has led to a market structure where overvalued assets receive disproportionate attention, making it challenging for active managers to thrive. As a result, Greenlight Capital has made significant changes to adapt to this shift, focusing on companies with low valuations and unlevered balance sheets.
Cautious investors looking for stability and income may want to consider active management and fixed income strategies instead of relying solely on high-yield savings accounts. According to SPDR Exchange Traded Funds' Matthew Bartolini, active fixed income within ETFs can provide consistent performance, improved tax efficiencies, and better forward-looking returns. However, Bartolini warns that higher returns come with higher volatility, and cash carries its own set of risks, such as reinvestment risk. Dan Egan of Betterment also highlights the challenge of convincing investors to move away from cash, given the perceived safety of FDIC-insured accounts.
BlackRock's Chief Investment Officer of Fixed Income, Rick Rieder, believes that investors underestimate the potential of actively managed fixed income exchange-traded funds (ETFs). Rieder highlighted the success of BlackRock's Flexible Income ETF (BINC), which has outperformed its peers by capitalizing on current market opportunities. BINC's allocations are based on the attractiveness of different markets, with a focus on non-U.S. credit, U.S. high yield credit, and U.S. investment grade credit. Rieder emphasized the advantage of active management in generating higher yields and managing volatility effectively. The fund has benefited from opportunities overseas, particularly in Europe, due to favorable currency swap rates and a stronger dollar.
Despite recent reports suggesting that a significant number of actively managed funds and ETFs are beating their benchmarks, it is not easier to beat the market. The argument put forth by William Sharpe in 1991 still holds true: on average, active managers must lag behind broad market indexes. While some managers may outperform in the short term, it is a zero-sum game before transaction costs and a negative-sum game after. One solution is to create separate portfolios, one for long-term index fund investments and another for speculative attempts to beat the market, acknowledging both the arithmetic truth and the psychological belief in one's ability to outperform.
Exchange-traded funds (ETFs) can still compete in today's "stock picker's" market, offering the benefits of active management and stock picking along with tax and cost advantages, according to Avantis Investors Chief Investment Officer Eduardo Repetto. He predicts that actively managed ETFs will continue to gain traction in the second half of the year. Over the past three years, the number of actively managed ETFs has grown, providing investors with more options beyond index ETFs. Avantis Investors' actively managed Avantis U.S. Equity ETF, with top holdings in Apple, Microsoft, Amazon, Meta Platforms, and Alphabet, has seen a 12% increase this year and a 49% increase over the past three years.