Roosevelt Investments is now CI Roosevelt Private Wealth

Passive Pride vs. Active Vigilance

Published on Nov. 28, 2018

Passive Pride vs. Active Vigilance

In the News:

Market volatility and the continued rise in interest rates have advisors sticking to allocations driven by active management. 83% of US based financial advisors said they believe the current market environment is likely favorable for active portfolio management, as published by Natixis Investment Management last week. Those who participated in the survey stated that they allocated only one third of client portfolios to passive strategies, while a larger percentage (roughly two thirds) was allocated to actively managed strategies.

This past February ETF Fund flows entered the red for the first time in years, according to DataTrek Strategist Nicholas Colas; which shows investors are thinking about more than passive investments. Active management has not been kind to investors over the past several years, but those returns have been improving as of late. According to Citywire, “In 2017, 43% of active managers beat their benchmarks, up from 26% in 2016, according to the latest Morningstar active/passive barometer report. Year-to-date in 2018, 63% of mutual funds are beating their benchmarks, according to a BofA report”. Lastly, as shown in the graph below produced by PIMCO, the majority of active bond funds and ETFs beat their median passive peers after fees over the past 1, 3, 5, 7 and 10 years. It’s clear that active management in fixed income yields a better outcome, given the bond market’s unique structure.

percentage of active mutual funds and etfs that outperformed their median passive peers after fees

What are we thinking?

While both active and passive management can play a role in overall investment strategy, it is important to be especially vigilant in the fixed income sector. Given the nuances of the fixed income landscape, active bond managers outperform their passive counterparts.

As bond managers focused on maximizing annual cash flows while preserving capital to provide future cash flows, our goal is to provide investors with a sustainable and substantial income stream. We believe the best approach, particularly in today’s uncertain environment, is an actively managed one. Let us show you how!

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