With the Nasdaq plummeting 27.2% and the S&P 500 Growth Index close behind at -26.2%, growth stock investors have taken it on the chin this year.
With that said, some stock market segments are holding up reasonably well, including dividend-paying stocks, represented by the Dow Jones Select Dividend Index, and value stocks, represented by the S&P Pure Value Index in the graph below.
Better performing sectors may have gone unnoticed by investors in passively managed portfolios constructed around broad market indexes, which tend to be heavily weighted in technology, financials, and health care. Market sectors that have performed relatively well this year, such as energy, are generally underweight in broad market indexes – potentially putting passive indexed strategies at a disadvantage.
Consider, for example, the current Nasdaq drawdown, which began in November 2021, and is at this point the third longest on record going back to the mid-1980s. Only the bursting of the tech bubble in 2000 and the global financial crisis of 2007/2008 saw longer drawdown periods.
Table 1: Nasdaq Top 10 Drawdowns since February 1985 – May 2022
A passive approach to equity investing could expose investors to uncomfortable volatility in the current environment, which may lead to poor investor behavior that could dampen returns and jeopardize long-term investment goals.
In contrast, we believe an active management approach, which allows for tactical moves during periods of weakness, may be prudent during volatile times. Actively navigating market uncertainty is a hallmark of Horizon’s goals-based investment strategy.
This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, contact Chief Investment Officer Scott Ladner at 704-919-3602 or email@example.com.
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