Active management aims to navigate trends as they emerge—and fade
We believe an active, dynamic approach to portfolio management can provide investors the potential to capitalize on emerging market opportunities and shift away from asset classes and sectors as their prospects for outperformance fade.
For example, consider the recent performance of two very different segments of the market: the tech-dominated Nasdaq 100 Index and the Dow Jones Select Dividend Index (which emphasizes utilities, health care, consumer goods, and financials).
- So far this year1, the Nasdaq 100 has soared 26.6%—while the Select Dividend index is down over 6%.
- But a slightly longer view reveals that, since the start of 20221, dividend stocks have outpaced the Nasdaq by 9.9 percent points, even in the wake of the Nasdaq’s recent surge.
A typical strategic allocation approach would likely passively participate, riding both the ups and downs of the market and potentially realizing higher volatility. In contrast, an active management methodology seeks to navigate multiple trends. For example, in markets like 2022, an active manager may have overweighted dividend-paying stocks and defensive sectors in a core allocation. In the market we are experiencing this year, a manager may elect to steadily increase allocations to growth-oriented market segments.
The Nasdaq 100 may have more room to run and could catch up to the Select Dividend Index. Eventually, however, the tech-heavy index might no longer lead the market higher; hitting new highs will likely require greater market participation. We are monitoring for catalysts likely to drive broader gains—such as healthy labor market trends, inflation continuing to fall back to a more normal range, a Fed policy pivot, and containment of further credit crunches from the regional bank problems earlier this year.
1 Through 05/19/23
Disclosure
This commentary is written by Horizon Investments’ asset management team.
Past performance is not indicative of future results.
The S&P 500 Index tracks the stock performance of 500 of the largest companies listed on stock exchanges in the United States. The Nasdaq-100 Index comprises 101 equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock exchange. You cannot invest directly in an index.
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