Displaying items by tag: active management

There has been an explosion in active fixed income flows in the last year. The big drivers that are pushing investors in that direction are mainly macro, as the Treasury yields have risen (lowering bond values) and passive funds haven’t moved off them rapidly enough. The other big factor is that they have flat-out outperformed. Where active equity lagged their passive counterparts data shows that almost 9 in 10 active bond funds have outperformed in the intermediate range. Overall this drove the $350 billion influx in active fond funds last year. Additionally, there were tax advantages when it came to capital gains and this efficiency was prioritized by investors.

Finsum: It's clear that the information cycle in active equity is currently outpacing the ability to beat the market, but bonds' medium-term macro influence is more predictable for active management.

Active management seems to be making a comeback, and adding to that rising rates have many investors eyeing fixed income. For overall active funds in 2020 and 2021, it was a nearly a 50/50 shot that they would outperform similar passive counterparts; in other words virtually no advantage. However, research shows that passive equity has an advantage but over the past 10-years active fixed income leads the way over passive funds. In the last decade, the average bond manager beat the Bloomberg Aggregate Bond Index nearly three-fifths of the time. However, fixed incomes risk mitigation isn’t captured here, and active funds have the advantage to adjust the risk factor over passive funds, carrying an additional advantage.

Finsum: The ultra-low interest rate environment has been the difference-maker for fixed income managers who have just capitalized better than passive funds.

BlackRock's active management has long been the forgotten investment in the firm's giant ETF basket they manage, but things are starting to turn. While the index business hit $10 trillion in the last quarter it was the active funds dring the fee growth in fact in the last quarter of 2021 they were responsible for 60% of the fee growth. The firm has poured lots of resources into their active funds and their active fixed-income has been a huge winner. The firm seems more willing now than ever to place itself as a big active manager where they have always been synonymous with passive investing. BlackRock credits its growth to its own internal push in active management but there has been a huge industry-wide surge in active funds.

FINSUM: Active equity still lags behind for lots of reasons, so its probably best to stick to direct indexing or ETFs in equity markets.

The fixed income ETF market took a hit in 2020, and it's been a very slow recovery. Still, active funds outperformed during this time period, and that trend could continue into 2022. A stand-out active bond ETF to consider is Fidelity Total Bond ETF. it’s seen stellar performance when compared to its peers and its managers are committed to ensuring liquidity. Another ETF to watch out for is Pimco enhanced Short Maturity Active ETF. This fund is more centered around stability and security with less risky management. However, avoiding high yield corporate debt and currency risk these factors can make it a safer alternative in the upcoming cycles.

FINSUM: Shorter duration active bond ETFs are really important to consider right now because they mitigate the single biggest risk that exists in bond markets: rising rates.

The bond market blues have been difficult as rising rates have started to really deflate a lot of funds. However, active bond funds have had an edge because not been pegged to indices they have freely navigated to localized emerging market debt. From HSBC to BNP many of the largest funds are buying up localized EM debt because many of these countries’ central banks tightened monetary policy last year and the rate hikes are already built-in. So as bond prices go down in the U.S. and inflation risk remains high, hawkish central banks in Russia, South Africa, Indonesia, China, and South Korea have all soured because localized currency means higher real payout and with relatively lofty interest rates the funds have a more promising horizon.

FINSUM: 12-Months ago the U.S. was looking at Emerging Markets as crazy for tightening the belt too quickly, but now these emerging markets are ahead of inflation and their bonds are soaring.