I really hope that 2015 will be The Year Of Active Management. Because 2014 was supposed to be only it didn’t work out that way. Instead, it was the worst year for stock picking mutual fund managers in three decades, with only 10 percent exceeding their benchmarks (that’s a 90% rate of failure, in case you’re keeping track).
But I think a healthy market environment needs good active management and a lot more managers doing well. It’s part of what makes markets function.
The good news, according to Investment News, is that financial advisors haven’t given up on the hope that the managers they select will be able to win…
According to the InvestmentNews Outlook 2015 survey of 380 advisers, 73% believe that active management will outperform passive management in the year ahead.
That sounds encouraging for active managers at first blush. But then you read the article and the premise behind advisor belief in active is that the fund managers can hold cash and the market may go down. Not a word about choosing the right portfolio or finding the best names to own.
“Good active managers have the ability to manage risk,” said Dan Jacoby, chief investment officer at Stratos Wealth Partners. “In an essentially straight up market, cash will be a drag on performance, if you’re holding 5% or 10%…But in periods of increased volatility or even a sideways market, good managers will be able to take advantage with cash.”
Someone tell Mr. Jacoby that there were three major dips in the market this year for the S&P 500 – in January, August and October – averaging 6% declines. Didn’t help. If anything, the gap between the field and the index widened on each successive recovery. Craig Lazarra of S&P Dow Jones Indexes has more on this topic here: Don’t Confuse Me With Facts (Indexology).
Maybe this year those “managers with cash” will be able to take advantage of volatility. Didn’t happen in 2014.