Chart of the Week
These charts show the movement of the S&P 500 versus a couple of properly screened actively managed mutual funds during two periods of market downturn. With the S&P 500 soaring the past 6 years, it is easy for clients to question the merits of active management. There is no doubt, nor disputable evidence, that most actively managed funds will underperform their index in strong bull markets and a low interest rate environment. That said, there are still managers that do outperform and with the appropriate screening process, investors can benefit from identifying these top managers and building portfolios. This is especially true during bear markets. A study by Sungarden Investment Research found that in the last two down market cycles, the index only beat 34% and 38% of its active management competitors, even when accounting for survivorship bias.
It cannot be stressed enough that investing is not all about what you make, but what you keep. Risk management and downside protection are fundamental in enhancing compound returns, and are nonexistent in passive management. If you are unsure of these qualities in your own investment process, email us at firstname.lastname@example.org, or follow this link to schedule a live webinar http://ow.ly/KfWRr.