Jenny Johnson, CEO of Franklin Templeton, said that while times are volatile that active management ‘really pays off’. FT is one of the largest asset managers with over $1.5 trillion under management and they are one of the largest active management firms. The firm has looked to acquire firms in what they label as a ‘bolt-on’ strategy to fill in the gaps in their offerings. Their acquisitions include Legg Mason and custom indexing provider O’Shaughnessy Asset Management. They are looking mostly into technology and alternative products to tie up loose ends. Johnson cited macro headwinds like Ukraine and the Fed’s hike as large macro factors generating volatility along with Covid spikes in developing countries, but their strategies are well suited to handle volatility.

Finsum: Active fixed income has a bigger advantage in high volatility than its equity counterparts, but still it could prove to be a picker’s market. 

You’d have to be completely blind to miss the market gyrations as of late, but the question remains which funds can you lean on in times like this? VIX only funds miss the boat because they have bad long-run historical performance and rely on timing the market, whereas volatility minimizing ETFs do a better job at hitting long-term targets. Dividend funds like SPHD from Invesco try and minimize volatility while still giving income exposure. A similar fund without the dividend is the IShares MSCI USA Min Vol ETF (USMV) which tracks lower volatility stocks. The advantage of these funds is that once volatility is gone they still provide potential upside so you aren’t guessing about volatility swings.

Finsum: While the VIX is a great market gauge it’s far from a stable long-term investment on its own, other volatility strategies can be more effective. 

Very few investment trends have caught on as rapidly as model portfolios which have seen widespread adoption, but this could be lowering asset flexibility. Model portfolios seek a variety of metrics for assets to be added to the fund. Assets may be excluded for categorical or qualifying reasons which can lead to a lack of adoption and lower returns. The selection bias in models leaves meat on the bone for investors and can keep them from getting exposure to products like covered calls or other investments.

Finsum: Model portfolios have their place, but they could create an inefficiency where some products are given their proper value.